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Senate Legislation Committees Consolidated reports on the consideration of bills Tabled January - July 1998 Vol. 4-Rural and Regional Affairs and Transport Legislation Committee


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The Parliament of the Commonwealth of Australia

Senate Legislation Committees

Reports on the Consideration of Bills

Tabled January - July 1998

Volume 4

Rural and Regional Affairs and Transport Legislation Committee

The Parliament of the Commonwealth of Australia

Reports on the Consideration of Bills by Senate Legislation Committees Tabled January - July 1998

Volume 4

Rural and Regional Affairs and Transport Legislation Committee

© Parliament of the Commonwealth of Australia 1998

ISSN 1038—2755

This document was produced from camera-ready copy and printed by the Printing Unit, Department of the Senate, Parliament House, Canberra.

TABLE OF CONTENTS

Rural and Regional Affairs and Transport Legislation Committee

Reports on the consideration of the—

• Australian Capital Territory (Planning and Land Management) Amendment Bill 1997, April 1997..................................................................... 1

• Primary Industries and Energy Legislation Amendment Bill (No. 3) 1997, June 1998..............................................................................................39

• Stevedoring Levy (Collection) Bill 1998 and Stevedoring Levy (Imposition) Bill 1998, June 1998................................................................... 71

• Wheat Marketing Legislation Amendment Bill 1998, June 1998q............. 107

The Parliament of the Commonwealth of Australia

AUSTRALIAN CAPITAL TERRITORY (PLANNING AND LAND M ANAGEM ENT) AM ENDM ENT BILL 1997

Report by the Senate Rural and Regional Affairs and Transport Legislation Committee

April 1998

© C om m onw ealth o f A ustralia 1998 IS S N 1038 -2 7 5 5

This document was produced from camera-ready copy prepared by the Senate Rural and Regional Affairs and Transport Legislation Committee, and printed by the Senate Printing Unit, Department of the Senate, Parliament House, Canberra.

Page Hi

MEMBERS OF THE COMMITTEE

Senator Winston Crane LIB, Western Australia Chairman Senator Kerry O’Brien ALP, Tasmania Deputy Chairman

Senator Paul Calvert LIB, Tasmania Senator Kate Lundy ALP, Australian Capital Territory** Senator Julian McGauran NP, Victoria Senator Lyn Allison AD, Victoria**

Participating Members

Senator Abetz Senator Brown Senator Bob Collins Senator Cook

Senator Gibbs Senator Sandy Macdonald Senator Murphy Senator Sherry

* *

Senator Bartlett Senator Brownhill Senator Colston Senator Eggleston

Senator Harradine Senator Mackay Senator Neal Senator Tierney

Senator Boswell Senator Chapman Senator Conroy Senator Ferris

Senator Ian Macdonald Senator Margetts Senator Schacht Senator West

Senators Allison and Lundy are substitute members of the Committee for the Committee's inquiry on the Australian Capital Territory (Planning and Land Management) Amendment Bill 1997

Committee Secretariat

Mr Andrew Snedden Secretary to the Committee Dr Pippa Carron Principal Research Officer Mr John O'Keefe Senior Research Officer Ms Judith Wuest Executive Assistant

Telephone (02) 6277 3510 Facsimile (02) 6277 5811

Internet www.aph.gov.au/senate Email rrat.sen@aph.gov.au

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TABLE OF CONTENTS

Membership of the Committee iii

Table of Contents v

Chapter 1

The Committee's Inquiry on the Bill Referral of the Bill 1

Committee Examination of the Bill 1

Consideration of the Committee's Report 2

Chapter 2

Provisions- o f the Bill Introduction 1

Terms of the Bill 1

Chapter 3

Views on the Bill Background to the Bill 7

Arguments Favouring the Bill Considered by the Committee 8

Arguments Opposing the Bill Considered by the Committee 10 Other Matters 1 - The Means Chosen for Achieving the Legislative Aim of the Bill and The Position of the ACT Legislative Assembly 12 Other Matters 2 - Native Title 14

Chapter 4

Conclusions and Recommendations 17

MINORITY REPORT BY SENATORS LUNDY, O'BRIEN AND ALLISON

Appendix 1 List of Submissions made to the inquiry

Appendix 2 List of witnesses who gave evidence to the inquiry

Appendix 3 List of Reports on the ACT Leasehold System 1973-1998

h

C H A PT E R 1

Referral of the Bill

THE COMMITTEE'S INQUIRY ON THE BILL

1.1 The Bill was referred to the Committee by the Senate on 12 March 1998.

1.2 The Bill was referred following the examination of the Bill by the Selection of Bills Committee and Report by that Committee to the Senate that the Bill be referred for examination and report by 31 march 1998.

1.3 The bill was referred to the Committee on the basis that

Provisions of the bill are contrary to reports and recommendations made previously. There is concern as to whether the Territory should have the power to determine its own land management system, and in the spirit of reconciliation, indigenous people needs [sic] to be

consulted.

1.4 The Senate agreed on 31 March 1998 that the Committee have until 2 April 1998 to complete its report on the Bill. The Senate agreed on 2 April 1998 that the Committee have until 7 April 1998 to complete and table its report.

Committee Examination of the Bill

1.5 The Committee advertised in The Canberra Times on 14 March 1998 for submissions to be lodged with the Committee by 20 March 1998.

1.6 In response to the Committee's advertisement, and to direct invitation issued by the Committee, the Committee received 28 written submissions. These submissions are tabled with the Committee's Report. A list of submissions is at appendix 1.

1.7 The Committee held two public hearings on the bill in Canberra: 23 March and 25 March 1998. Hansard of the hearings is tabled with the report. A list of witnesses at the hearings is at appendix 2.

1.8 The Committee wishes to thank all those who prepared written submissions for the inquiry at very short notice and who assisted the Committee as witnesses at its hearings.

1.9 The Committee also acknowledges the assistance provided to it by reference to the Parliamentary Library Bills Digest on the bill (Digest No. 135 1997-98), which has proved valuable in reaching understanding the bill and its effects.

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Consideration of the Committee's report

1.10 The Committee met on 7 April 1998 to consider its report to the Senate on the Bill.

C H A PT E R 2

PROVISIONS OF THE BILL

Introduction

2.1 The Bill was introduced into the House of Representatives on 4 December 1997 and passed by the House without amendment on 10 march 1998.

2.2 The Bill is under the portfolio responsibility of the Minister of Regional Development, Territories and Local Government.

Terms of the Bill

2.3 The Bill will, if enacted, amend the Australian Capital Territory (Planning and Land Management) Act 1988 s9o as to extend the maximum term of a lease in the Australian Capital territory form 99 years to 999 years.

2.4 Commonwealth ownership of all land in the Australian Capital Territory (ACT hereafter) is effected by s 125 of the Constitution which states in part that:

The seat of Government of the Commonwealth shall be determined by Parliament and shall be granted to or acquired by the Commonwealth and shall be vested in and belong to the Commonwealth.

2.5 Leasing of land in the ACT is provided for in the statute governing the administration of the ACT, the Seat of Government (Administration) Act 1910 which provides (section 9) that 'no Crown lands in the territory [ie, the ACT] shall be disposed of for any estate of freehold'.

2.6 In 1989 the Parliament made provision for ACT self-government in a series of Acts, including the 1988. The Australian Capital Territory (Planning and Land Management) Act (the Act) provides, in section 29, that the ACT Executive (ie, the ACT Government) will be responsible for the management of land in the ACT on behalf of the Commonwealth.

2.7 Section 29(3) of the Act provides that the term of an estate in ACT land granted upon and after self-government (which occurred on 11 May1989) 'shall not exceed 99 years or such longer period as is prescribed, but the estate may be renewed'.

2.8 The bill provides for the amendment of section 29(3) in the manner described above.

2.9 During the course of the Committee's inquiry it was stressed that the alteration to the possible maximum term of leases which would be effected by the

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bill's enactment would only occur on enactment of amendment of the ACT Land Act, and that the bill was enabling legislation.

2.10 The Explanatory Memorandum to the Bill indicates that, in considering the appropriate response to the request for amendment of the Act, the Government considered several options for providing the ACT Government with the ability to enact the change proposed by the bill.

2.11 Of the options, amendment of section 29(3) of the Act was the one chosen in preference to effecting no change, or change by regulation.

1 See explanatory memorandum to the Bill, p. 2., 'Identification of options (regulatory and non- regulatory)'.

C H A PT E R 3

VIEWS ON THE BILL

Introduction

3.1 The Minister's Second Reading Speech, noted that the purpose o f this Bill is to

.... increase the attractiveness of the Australian Capital Territory to potential investors by removing the perceived disincentive to business and other investment, brought about by the limit of land tenure to 99-year estates, as distinct from freehold title enjoyed

elsewhere in Australia.

The strengthening of land tenure security in the ACT for both residential and business purposes will deliver on an important election commitment.

Section 9 of the Seat of Government (Administration) Act 1910 provides that no crown lands in the Territory may be sold or disposed of for freehold estates.

The Australian Capital Territory (Planning and Land Management) Act 1988 provides for land in the ACT to be National Land or Territory land is land so declared by the Commonwealth minister as

land used or intended to be used by or on behalf of the

Commonwealth. Land that is not national Land is Territory Land. The ACT Government manages Territory Land on behalf of the Commonwealth and may grant, dispose of, acquire, hold and administer estates in Territory land.

The ACT Government has sought an amendment to the Australian Capital territory (Planning and Land Management) Act 1988 to enable it to issue leases for a maximum term of 999 years. The Chief Minister, Mrs Camell, has cited the 99-yaer limit as antiquated and unduly restrictive. ACT business representatives have supported the proposed amendment .*

3.2 In a later explanatory comment, the Minister noted that the bill will not provide for automatic extension o f existing estates. A leaseholder seeking a term longer than 99 years will need to apply to the ACT Government for a new grant.

Minister's second reading speech, p.l.

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The ACT Government has indicated that only a modest administrative charge will apply to the grant of new leases to existing leaseholders, provided no terms of the lease, other than the lease period, are changed.

And

The Regulations [under the Act] currently applicable which relate to 999-ywear lease granted for tertiary education or church purposes prior to the introduction of Self Government in the ACT, will be unaffected by the proposed amendment.

3.3 Submissions and evidence taken by the Committee addressed the principal issues whether the bill, which alters a long-standing leasehold structure, will provide such a change o f estate that it will undermine the unique system of planning and direction o f urban land use embodied in the ACT'S 99- year lease term. ·

3.4 The submission on the Bill provided by the Department o f Transport and Regional development noted that the Bill has been introduced following an approach from the C hief minister o f the ACT in September 1996 for an amendment of the Act citing

....the need for the greater certainty for leaseholders and the desirability of improving a system that is seen as being 'antiquated and unduly restrictive'. It is seen to be important for the economy of the ACT that conditions are as similar as possible to the conditions elsewhere in Australia.2

3.5 The submission also confirmed the position regarding planning of Canberra as National Capital City

National interests in the National Capital will continue to be protected through the National Capital Plan (whose object is to ensure that Canberra and the Territory are planned and developed in

accordance with their national significance), and through the retention of the National Land by the Commonwealth. It is reiterated to the Committee that Estates in National land will remain for a maximum of 99 years.3

3.6 In discussions with the Committee, Ms Gayler o f the ACT Liaison Unit of the Department told the Committee, on questioning from Senator Lundy, that the provision o f the bill will not affect the National land system o f leases

Submission 20, Department o f Transport and Regional Development, p. 2.

See, as above.

, ' )

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Chapter 3 Page 7

and that planning and leasehold purposes controls for these areas will be retained in Commonwealth control.

3.7 In answer to questions raised at the Committee's hearing on the Bill by Senator Calvert, Ms Gayler advised

The Australian constitution and the Seat of Government Act contain restrictions in relation to ffeeholding of land in the ACT. That given, this bill enabling 999-year leases will move ACT residents and commercial enterprises to a position much closer to the freehold

situation pertaining in the other jurisdictions5

Background to the Bill

3.8 The Committee learned during the inquiry that a large number of detailed reviews of the ACT land leasehold system, particularly during the last 25 years. Due to the apparently exhaustive nature o f these inquiries, and to assist the Senate's consideration o f the Bill, a full list o f these inquiries6 is

shown at appendix 3.

3.9 Principal amongst these inquiries are

• The Senate Select Committee on the Development o f Canberra (1955)

• The 1976 Land Tenures Inquiry (Also referred to as the Else-Mitchell inquiry after its Chair, Justice Else-Mitchell) (1976)

• The White Report (1983)

• The Report of the House of Representatives Standing Committee on Transport. Communications and Infrastructure (Also referred to as the 'the Langmore Report after the then Chair o f the Committee, Mr John Langmore, MP) (1988)

• The Stein Report (1995 )7

3.10 O f these, only the Land Tenures Report favoured perpetual leasehold for residential lease and made no recommendation for commercial leaseholders beyond recommending that commercial leases be for fixed terms.

Evidence, 25 March 1998, p. 4.

As above, p. 2.

See, Pari. Library, Bills Digest on the Bill, Appendix 3.

'Report into the ACT Leasehold' (Justice Paul Stein - Chair), Report to the Chief Minister, ACT Government, Canberra. November, 1995.

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A rgum ents Favouring the Bill C onsidered by the Com m ittee

3.11 The principal argument raised in favour of the amendment proposed by the bill is in the ACT Government submission to the inquiry.

3.12 The submission highlights the ACT Government's reasons for requesting the amendment o f the Act in the manner proposed by the Bill and that successive reports on the ACT leasehold system have stressed that some

form o f leasehold estate should be retained in the ACT to ensure that

Redevelopment principles of, and compliance with, the leasehold system remain whatever the lease term, Through its legislation th3e ACT Government will continue to impose fees for changes of use and other aspects of redevelopment. Planning principles and

controls, being embodied in provisions of the lease itself will continue. There are separate , statutory processes for amendment of the Territory Plan and the National Capital Plan.8

3.13 The ACT Government submission also spelt out how the

implementation o f a 999-year term for ACT Meases would be effected

Implementation of lease terms for 999 years, after passage of the enabling Commonwealth legislation, will require further amendment to Section 171 and 172 of the L a n d A c t to permit new lease terms. I envisage this renewal process would mirror the application-based process now where lessees seek to renew their leases for 99 years.

The Assembly's consideration of Land Act amendments will open debate and consultation processes in the Territory. The ACT Government will be very mindful of the need to explain the nature of the leasehold system and its administration to counter

misinformation by its critics.9

3.14 The ACT Government submission emphasised that a key reason for pushing for amendment o f the Act to allow for 999-year leases is to encourage appropriate business investment. By 'business investment' it means those

interested in taking up commercial leases, in all areas o f commerce, who may find the leasehold structure or term too restrictive.

3.15 In relation to the argument that the ACT was offering leases to

commercial interest o f a comparable nature to those offered in London and Hong Kong, the ACT Government submitted that

The ACT cannot be compared with London, Hong Kong or Singapore in that they are city states compering on their own merits

Submission 13. ACT Government, p.3.

Submission 13, ACT Government, p. 4.

Chapter 3 Page 9

in a world market. The ACT is competing with a group of States for a limited market, and needs to do so on a s an as equal a footing as is possible, particularly as the Territory moves away from a market dominated by Commonwealth Government activity.10 *

3.16 In support o f the scheme proposed by the bill, submissions to the Committee generally argued that the current term o f 99-year leases was too restrictive to allow for m odem commercial and private - as opposed to government development, which characterised early Canberra development.11

3.17 Arguments from the Australian Property Council saw the proposal in the bill as a step toward a system o f freehold for the ACT - particularly with regard to commercial leases. M r Service of the Council told the Committee

..... we have taken a position consistently that one of the most fundamental issues for our members, who are principally owners of properties? That is, owners and investors and the providers of capital is to achieve an outcome of certainty. We have not necessarily

campaigned against a leasehold system per se. What we have campaigned for is the best system. We have consistently said that, in our opinion, in a long-term sense, freehold is the best system for Territory-owned land; that is, the land that Territorians own and the

land that others invest in the territory, leaving aside the issue of national land. But we have equally recognised that there are some views of principle, and some emotive views, about why freehold may not be appropriate for the ACT as it stands.

Having said that, we have recognised that still our obligation to our members is to seek to achieve the best outcome we possibly can, within the time frame, and within the measures available to us, and with the opportunities we have to put that case forward. In this

instance, a move from 99 years to 999 years is the next best step to freehold, and we will actively support that as being as close as our members can get, as close as the Territory can get, to selling our leasehold system outside of the ACT.12

3.18 In its evidence, the AIVLE pointed out to the Committee the existence in the Act for the current 99-year term to be extended whilst maintaining the current planning controls over land use and development

Already in the federal legislation there is a provision for the 99-year lease to be extended. It says, quite clearly '99 years or such longer period as is prescribed1. There are already cases of the 999-year lease

Submission 13, ACT Government, p. 4.

Submission 9, Australian Institute of Valuers and Land Economists, p. 2.; submission 10, Aust. Property Council, Submission 11, Real Estate Institute of the ACT Ltd.

Evidence, 23 March 1998, p. 10.

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or perpetual leases here in the ACT. All the universities and the churches already have them. It is almost a natural progression today to go to the 999-year leases. The chairman mentioned the many inquiries. A lot of those inquiries had nothing to do with, or their tasks were not to do with, the leasehold system, but every single one of them has come up and said the leasehold system is not particularly adequate at the current time. I think it is time. Our argument, very strongly, is for us to have the same type of system or land tenure that is available elsewhere in Australia. The Northern Territory got it in

1980. It is time the ACT residents had the same opportunity.

The leasehold system maintains the renewal of the leases and the clauses allow the government to keep control of planning, and there is no change in that. Overall, the greatest disincentive at the current time to investment by business in the ACT is that land tenure system. Irrespective of what people might think about it, it does prevent people wishing to invest in the ACT. We believe that as the

ACT now has self-government, the federal government should allow the ACT government itself to make the decision on the land management system in the ACT.13

Arguments Opposing the Bill Considered by the Committee

3.19 Arguments opposing the Bill concentrated on the fundamental change that the enactment o f provisions which will allow extension o f the term o f ACT leases to 999 years. Principally, those opposed to the change proposed by the Bill pointed out the possibility o f high costs in any future resumption o f

leaseholds if the unexpired term was extremely lengthy (such as 999 years).

3.20 In his submission, Professor Patrick Troy noted

The present proposal simply transfers major national assets into the hands of a small group of existing leaseholders. Conferring 999 year leases on existing lessees reduces the present and future government's ability to plan for the orderly development of Canberra. It effectively gives away the opportunity to take leases back into public control for any legitimate public purpose without payment of a premium for land which it already owns. The right is very valuable and becomes increasingly so as we approach the time when strategically located leases have short periods before their term expires.14

3.21 In discussions with the Committee, Professor Troy told the Committee that to alter the term o f ACT leases in the manner proposed by the bill would be to undermine the position determined by the Parliament

13

14

Evidence, 23 March 1998, p. 1.

Submission 12, Professor P Troy, AO, p. 2.

Chapter 3 Page 11

The argument is that someone puts in a lot of effort and then wants to get a reward from that, but they get the reward from the operation they run on that particular lease, with the conditions that have been laid down, for the period that has been laid down. There is nothing

wrong with that. What this is doing is a backhanded way of trying to undermine something which was written into the constitution at the very outset, and the citizens of the ACT, including those investing in the ACT, were able to invest in it at a lower level simply because

they had to have less capital, simply because it was a leasehold system. So that is an important part of this.

People are now turning that around and saying, 'That's not what happened.' That is exactly what happened. What we are facing here is people trying to give away an asset. I am a Canberran, and I am also an Australian, and I actually find it ethically repugnant to do

that. It just seems to me to be wrong. I will, however, say to you that if you turn around and turn my lease into a 999-year lease I will not object because I will be like the rest of them. All citizens will do that. That would be not the right thing. You would be regarded as not

acting in your own best interests if you turned that down.

So that is the way to see this. This is people who are saying, ’This has got nothing to do with good administration.’ It's actually a gift at the expense of the nation to a relatively small number of people. We have already made the concession about the residential

stuff. This is largely for the commercial and industrial lessees, that is where the major source of revenue is being lost, and that is where it will continue to be lost once this transfer takes place. If this transfer

takes place.15

3.22 In his submission, Michael Moore, MLA told the Committee that the changes proposed to the ACT leasehold system by the bill would, in the end, benefit commercial leaseholders at the expense of residential leaseholders and, because of the special nature o f ACT land tenure, the nation.16

3.23 In discussion with the Committee, Mr Moore highlighted the

importance, as he saw it, o f the perception that leaseholders have toward land tenure o f longer term than a 99-year lease.

The point that has been made by a series of inquiries is that when you change to a perpetual lease or a 999-year lease, it is another incremental step in undermining the leasehold system. The community perception is that it is their lease, it is their land to use

for the next 1,000 years as they like, therefore they have the prerogative, and it is part of an incremental system of changing the way people perceive leases and undermining the ability of

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16

Evidence, 23 March 1998, p. 30.

Submission 14, Michael Moore MLA, p. 3.

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governments therefore to raise revenue in this way. That is the difficulty, and as I think most of us know, changes that occur in terms of public revenue and public perception are almost always about incremental change, rarely about major revolutionary change, and this is about part of that incremental change.17

Submission to the Committee from several individuals and community groups also stressed the factor that has been the source of great opposition to the nature of the change proposed by the bill: the perception that unearned increments in land value would not be passed on to the Commonwealth (and hence to the Australian people as a whole) and that orderly planning and development of ACT land through a system of lease purpose clauses and other conditions would not be able to continue under a system where long leases would make exercise of such controls practicable.18

Other Matters 1 - The Means Chosen for Achieving the Legislative Aim of the Bill and The Position of the ACT Legislative Assembly

3.24 In discussions with the Committee, the ACT Deputy C hief Minister, Gary Humphries replied to a question from Senator Lundy regarding legislative options selected to give effect to the proposed change. In effect, there were three options canvassed by the Commonwealth. The option chosen - expressed

in the Bill - involved amendment o f the Act. The others involved alteration to the current legislative scheme o f the Act by regulation

The regulation under 29(3) would be an act of the Commonwealth minister, not of the ACT minister or ACT government, and it may well be that such an administrative instrument would achieve a result very similar to option 1. It would provide for possibly a wholesale conversion of those leases to 999 years. The ACT government has very firmly argued that it should not be the way that we proceed, for the reason that we believe this is an argument and a debate which

ought take place within the ACT Legislative Assembly. The use of a regulation power by the federal minister obviously will not make that possible.

I suppose it is possible for the Commonwealth both to legislate in this way, and to regulate, to follow up some details, but I would think it is again better, from the point of view of giving the ACT

Evidence, 23 March 1998, p. 33.

See, eg, submissions 25, North Canberra Community Council; submission 26, ACT Division, Australian democrats; submission 23, Mark Dunstone; submission 24, Julie Smith.

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parliament the right to have this debate, for it to simply legislate, as provided in paragraph l . 19

3.25 In response to further questioning by Senator Lundy as to whether the ACT Government is at this time able to properly inform the Commonwealth Parliament as to how the change to a 999-year lease system will be actually achieved, Mr Humphries told the Committee

You say we cannot describe the process by which 999-year leases will operate. That is not true. The basis on which 999-year leases will operate will be exactly the same as they now operate, except with longer leases. The extended control by the ACT government

over the way in which leases are administered will remain the same. The ways people buy and sell their leases will remain the same. The rights people have in respect of those leases will remain the same. There is no material difference between the present system and the

proposed system with respect to the administration of the leasehold system..20

3.26 Regarding the effect that stability of the ACT Assembly may have on the issue, Mr Humphries told the Committee that, to the ACT ^Government's view, this was not a relevant consideration t

Regarding any further uncertainty in a political sense in the parliament, I think it has been somewhat exaggerated, I might say. It is no worse, in a sense, than uncertainty generated by the government of the day not having a majority in the Senate. That

uncertainty will not have a bearing on the nature of investment in the land, because the leases are 999 years.

I accept that there is still an element of uncertainty in having only a leasehold, but that would surely be very small given that a person can now acquire, particularly in a commercial setting, a leasehold of 999 years. I do not think many business people or

corporations are projecting much beyond that these days, so I do not think that would be a problem in any realistic sense.21

3.27 The Committee also took this issue up with Michael Moore, ML A who had made a submission to the Committee to the effect that the Constitution (S. 125) places a burden on members o f the Commonwealth parliament to ensure that any alteration to the current structure and terms o f leasehold land in the

19

20

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21

Evidence, 23 March 1998, p. 19.

Evidence, 23 March 1998, p. 20.

Evidence, 23 March 1998, p. 22.

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ACT should be carefully scrutinised to ensure that a proposed change does not effect any transfer o f the development rights to land in the ACT.22

3.28 In his discussions with the Committee, Mr Moore highlighted this point.23

3.29 The Committee asked the ACT Government to provide it with further advice on the means and administrative system it intended currently using to properly administer a change in leasehold terms from 99 to 999-year leases.

3.30 In a letter dated 27 March 1998, the ACT C hief Minister, Mrs Camell MLA, advised the Committee that

Whilst ordinarily speaking, these administrative matters would not be issues of concern for the Commonwealth, I reassure you of the policy stance outlined in our submission. There is no fundamental change to the administration of leasehold and the ACT Government has a clear plan for implementation.

Once the Commonwealth Parliament has passed the enabling legislation (whether the anticipated model at option l[ie, o f the Bill] or otherwise) the ACT Government would introduce amendments to the Land Planning and Environment Act (A.C.T.), principally Sections 171, 172 and 172A. These amendments would permit transition from 99 year leases to terms up to 999 years. As you will appreciate, the amendments would be debated in the ACT Legislative Assembly and the final detail of administration would be subject to the outcome of that debate.24

Other Matters 2 - Native Title

3.31 A second matter which arose during the hearing relates to the position o f Native Title claims to ACT land pursuant to the Native Title Act 1993. During the Committee's hearing the Committee Chairman drew attention to the issue. In its submission, the Department told the Committee that

With regards to the needs of indigenous people, the Department has been advised that it is unlikely that this amendment, which provides only for the possibility o f a longer term lease, would have any bearing on native title claims. Specific claims are dealt with by the

Submission 14, Michael Moore MLA, p. 4.

Evidence, 23 March 1998, p. 32-3.

Letter dated 27 March 1998 from ACT Chief minister to Chairman o f the Legislation Committee, Senator W Crane.

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National Native Title Tribunal and the Federal Court of Australia and it is the responsibility of that Court to make determinations.23

3.32 This advice was repeated to the Committee both by the Department, and by the ACT Government, during evidence.* 26

2 Submission 20, p. 3.

26 Evidence, 23 March 1998, p. 19; 25 March 1998, p. 8.

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CHAPTER 4

CONCLUSIONS AND RECOMMENDATIONS

4.1 The Committee has considered the terms o f the Australian Capital Territory (Planning and Land Management) Amendment Bill 1997.

4.2 To assist its examination o f the Bill, the Committee has considered submissions and evidence from the Government, from the ACT Government and from members o f the ACT Legislative Assembly, representatives o f ACT community and political groups, industry groups, individual companies and

ACT citizens.

4.3 The following issues raised with the Committee have been the subject o f specific inquiry by the Committee

• The necessity o f ensuring that ACT land is retained as a leasehold system so as to ensure that all ACT land continues to be ultimately held by the Commonwealth

• Those proper and appropriate planning and development controls on ACT land are retained in Commonwealth legislation.

• That the Bill, as a form o f enabling legislation, will provide adequate and appropriate machinery for enactment o f change o f maximum leasehold terms in the ACT from 99 to 999 years, if and when appropriate, by the ACT Legislative Assembly.

4.4 Following the Committee's inquiry, the Committee concludes

a) The Bill is an appropriate form of enabling legislation allowing the ACT Legislative Assembly to enact a change o f leasehold term from a maximum possible term of 99 years to 999 years. The

Committee notes, in this regard, that the Bill allows for a change (if and when enacted by the ACT Legislative Assembly) from 99 to 999 years.

b) Following inquiries o f the ACT Government as to the

machinery proposed for administration o f any changes to the term o f ACT leasehold approved by the Commonwealth Parliament, the Committee is satisfied that the passage of the Bill should be supported.

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Recommendation

The Committee recommends that the Australian Capital Territory (Planning and Land Management) Amendment Bill 1997 be passed without amendment.

Senator Winston Crane

Chairman

MINORITY REPORT

SENATE RURAL & REGIO NAL AFFAIRS AND TRANSPORT LEGISLATIO N COMMITTEE

D issenting report by S enators Lundy, O 'B rien and A llison on the consideration o f the Australian Capital Territory (Planning & Land Management) Amendment Bill 1997.

Introduction

1.1 Support for this Bill is derived from two sectors of the ACT - the minority Liberal Government and vested commercial interests that stand to benefit from a shift to 999-year leases. .

1.2 This is, in effect, the sixth major inquiry reviewing ACT land management. Despite the plethora of reports, there is no empirical evidence that confirms 999-year leases would attract investment to the ACT.

1.3 The basis for this Bill lies in the ACT political situation prior to the February 1998 Legislative Assembly election. ACT Chief Minister, Kate Camell, promoted this Bill as part of her election campaign and this should be considered when assessing the Bill's merits.

1.4 The arguments put forward by the ACT Government and ACT commercial interests are clearly based only on perceptions. The Committee heard from many witnesses that agreed to change to 999-year leases is about creating an impression of freehold title.

1.5 Only 28 written submissions were received by the Committee, 12 of which originated from related industry associations or similar commercial organisations. Only five submissions from private citizens were received, three of which did not support the Government's Bill. It is also noted that along with the ACT Government submission to the

Committee, there were two submissions from Members of the ACT Legislative Assembly that did not support the Bill.

Origins of Canberra Leasehold

1.6 The origins of Canberra's unique system of land tenure lie deep in Australia's history of land settlement. In the decades preceding the formation of Australia as a Federation of States, the history of land settlement and development is littered with the alienation of large tracts of land and speculation in anticipation of unearned gains from its potential use and

development.

1.7 Australia's founders were determined to see that such rampant speculation in land was not repeated in the development of our National Capital. The Constitutional Convention debates of the 1890's and early parliamentary debates reflect the level of concern over the possibility of widespread speculation in land in selecting a site for the national capital. The

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emphasis in the debates about a site for the national capital was on the social evils of speculation, high profits for the speculators, high prices for homebuyers and high costs for the provision of public services.

1.8 At the time of Federation, public land ownership and leasehold tenure were seen as a way of passing on unearned increases in the value of land to the whole community rather than to individual landholders.

1.9 Two themes recur intermittently from the time of Governor Phillip's land grants in the 1780's to the time of Federation.

1.10 First, land policy as expressed by successive Governors in administering land to achieve public objectives. From 1788 through to the early twentieth century the main public objective was development of land: the epitome of the anti-social holder of property was the speculator. That is, those who held land and did not put it to productive use. It was generally believed that property should be put to productive use and yield an income. It was undesirable for a property owner to profit simply from the increase in the value of land that resulted from population growth and development around it.

1.11 Second, the theme of sound estate management, particularly in relation to enforcement of conditions placed on land grants. Sound land policy inevitably requires long term measures and administrative continuity. One generation can pass laws and establish principles of administration, but if the intentions of those policies and principles are not

understood by succeeding generations, they are bound to be eroded.

1.12 The principle of public ownership of land was given expression in Section 125 of the Constitution, which states that:

The seat of Government of the Commonwealth shall be determined by the Parliament, and shall be within territory which shall have been granted to or acquired by the Commonwealth, and shall be vested in and belong to the Commonwealth, and shall be in the State of New South Wales, and be

distant not less than one hundred miles from Sydney.

Such territory shall contain an area of not less than one hundred square miles, and such portion thereof as shall consist of Crown lands shall be granted to the Commonwealth without any payment therefor. The Parliament shall sit at Melbourne until it meets at the seat of Government.

1.13 The Constitution is quite clear in its intention that land for the national capital be vested in and held by the Crown as Crown land.

1.14 This provision is further enacted by Section 9 of the Seat o f Government (Administration) Act 1910, which states in part, that

No Crown lands in the territory shall be sold or disposed of, for any estate of freehold....

1.15 This provision is seen by many as the lynchpin of leasehold tenure in the ACT (Brennan 1971:35, Knight 1979, and Langmore 1988), and has never been repealed or challenged in the High Court.

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Reasons for Leasehold

1.16 The reasons for leasehold land in the ACT were explored in the 1988 Report on the Canberra Leasehold System prepared by a Joint Sub-committee of the Senate Standing Committee on Transport, Communications and Infrastructure in 1988. It is worth reflecting on a paragraph from that report:

1.17 There are a number of reasons why a leasehold system was adopted in the ACT. The leasing of land was seen as a way of ensuring orderly development by placing conditions on the granting of leases. By leasing the land the Commonwealth Government could provide sites at low capital cost for housing and for public and community services as well as for

commercial activities. Leasehold provided a means of planning the city so that it developed in a predictable fashion. It was expected to be less difficult to enforce urban than rural lease conditions since use of land in urban areas could be more readily observed. Leasehold could prevent speculation in allotments by requiring building within a specified period, thus

establishing stability and predicability of land use. It reassured residents and other lessees about existing and future use of nearby land.

(Joint Sub-committee 1988:9).

1.18 The Joint Sub-committee concluded that it believed the leasehold system in the ACT serves two major interests - national and local.

Canberra land is a national heritage to be safeguarded and used for the benefit of the nation and its capital. Leasehold tenure ensures that ownership of the land remains in the public domain for the benefit of all Australians. Not only does the leasehold system serve the Territory's National Capital and Seat of Government characteristics but it serves the

interests of the local Canberra community by ensuring orderly development in a predictable fashion and by preventing speculation.

(Joint Sub-committee 1988:10).

1.19 To summarise, the original reasons for the adoption of a public leasehold system for the ACT were fourfold:

• avoiding speculation in undeveloped land;

• allowing unearned increments in land value to be retained by the Australian people;

• defraying the expenses of establishing the national capital; and

• ensuring the orderly planned development through lease purpose clauses and other lease conditions, such as fixed lease terms of no more than 99 years.

The Functions of Leasehold Tenure

1.20 The two primary functions performed by leasehold tenure are:

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• Land use planning; and

• Estate management.

1.21 In a publicly owned estate, as is the case in the ACT, the ground landlord (the Federal Government) has a dual role of carrying out these functions - as planner and as landlord.

1.22 Prudent and sound management of the estate requires that it maximise the long-term return to the community from the whole of the leasehold estate. From a planning perspective, the objectives are broader and include the wellbeing of those living outside of the estate and of future generations. While the objective may at times be in conflict, they are closely related for two reasons:

• they both make use of a very important instrument, lease conditions including fixed terms of no more than 99 years, defining development rights; and

• in the great majority of cases an enlightened lessor and an enlightened planning authority will agree on the appropriate lease conditions.

1.23 As the Stein Report into the Administration of ACT Leasehold notes, the distinguishing feature of leasehold is the passing of exclusive possession from the lessor to the lessee for a definite period of time, or for successive periods of time until determined (Stein 1995:22).

1.24 Over time, land policy and land administration practices have changed and considerably weakened the possibility of achieving the objectives as outlined above, and have made leases in the ACT increasingly like freehold.

1.25 The two remaining elements of leasehold that are crucial to its continuing effectiveness are lease terms and lease purpose clauses. Each of these elements presents the ground landlord with the ability to levy a charge for the rights granted.

1.26 As Professor Neutze points out in his submission to the Committee, if such charges are removed, it has a number of undesirable effects, including:

• circumvention of the purposes of Section 125 of the Constitution; and

• the increase in land value arising from increased terms would hand a capital gain to established property owners.

Deficiencies of the Principal Argument Supporting the Bill

1.27 The Majority Report of the Committee identifies the ACT Government's submission to the inquiry as the most favourable argument for supporting the Bill (Ref: Majority Report 3.11).

1.28 Under questioning from Senator Kate Lundy about the actual implementation of this proposed change, the ACT Deputy Chief Minister, Mr Gary Humphries MLA, was unable to

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provide the Committee with answers to fundamental issues associated with the administration of the proposed changed lease arrangements:

Senator Lundy: I understand you said earlier that it was not an automatic conversion, that it was an application [and] that upon application they will be transferred from a 99 to a 999 [lease] or whatever term you so desired?

Mr Humphries: I think that is a bridge we have not yet crossed.

Senator Lundy: Do you know how it [transfer to 999 years] is going to work?

Mr Humphries: No. There are two possible ways. One is to provide some legislative provision or maybe regulatory provision, pursuant to legislation that has been passed already, that would convert leases automatically to 999 years. Alternatively, we could have an application based system, and I

suppose the technical strength of either of those positions is a matter we have to weigh up....

Senator Lundy: But you have not got the answers yet?

Mr Humphries: No, I have not...

(Hansard, p 18)

1.29 Although the ACT Government submission cited the need to encourage business investment as the driving force behind this Bill, no examples or illustrations were produced to support this argument.

1.30 The submission reiterated anecdotes and allegations without providing the Committee with any facts or evidence to support the claims:

Large financial institutions and corporate investors...appear not to be attracted to invest in Canberra unless returns are guaranteed. Such returns may include long term leases...the ACT Government has had numerous dealings with its commercial lessees where the limitations of a lease term

have sent investment elsewhere. (ACT Government Submission, March 1998, p 1)

1.31 Again, no evidence was supplied to the Committee substantiating this claim. Neither the 1983 White Report, the 1988 Langmore Report nor the 1995 Stein Report were furnished with any evidence of financial institutions not investing in the ACT because of its land management system.

1.32 In fact, evidence heard by the Committee from Ms Gaylor, Assistant Secretary, Australian Capital Territory Liaison Unit, indicated that there is no definitive research that has been used to establish this position.

1.33 Loss of both revenue to the ACT Government and reasonable control over land management and planning within the Territory are issues that were raised by several witnesses. Labor and Democrat Senators consider that these issues should be matters of concern for both the ACT Government and the Commonwealth.

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1.34 The negative repercussions for the ACT Government and community that may follow if this Bill is passed are matters of deep concern, particularly in relation to the areas of environmental protection and the maintenance of reasonable development standards. The fact that there is strong opposition to the proposed changes by a number of Members of the ACT Legislative Assembly is a factor that dissenting Senators can not ignore.

1.35 The dissenting Senators found the ACT Government submission extremely poor and are concerned that the submission and evidence provided by the ACT Deputy Chief Minister at the Committee hearing did not satisfy the standard required for the Senate to proceed confidently in facilitating such a major change to the ACT Land Management and Planning system.

No Disincentive to Development

1.36 The dissenting Senators do not accept that the current leasehold system has been a major disincentive to development or investment in the ACT, nor will it be in the future.

1.37 None of the submissions or witnesses were able to provide the Committee with any concrete examples or research that investment or development has been, or will be, restricted by the present leasehold system. However there was convincing evidence provided by Professors Patrick Troy and Max Neutze to the contrary.

1.38 Professor Troy's submission pointed out:

That the alleged faults of the leasehold system in Canberra could be overcome if the system was properly, consistently, openly and honestly administered.

It is my understanding of the way leasehold systems operate elsewhere that there is no evidence which can support the claim that the leasehold system itself inhibits investment in the ACT.

Other cities in Australia are currently experiencing similar low levels of investment in these areas and no one claims that it is the freehold system which produces that situation.

There is no evidence that other urban centres on the fringe of Canberra which also do not have a leasehold system are faring any better than Canberra in terms of current levels of investment either.

(Submission 12, March 1998, pp 2-3)

1.39 Professor Neutze submitted that:

There is ample evidence from my studies of the operation of leasehold systems in Canberra and other places that leases of less than 100 years do not cause insecurity which inhibits investment.

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The present relatively low levels [of investment] result from a shortage of demand not from the limited terms of the leases. (Submission 3, March 1998, p 3)

1.40 The dissenting Senators found that parties supporting the Bill did not put forward any counter argument to the evidence provided by Professors Troy and Neutze. The dissenting Senators also believe that not enough weight was given to their evidence in the Majority Report.

1.41 Additionally it is generally accepted that it is merely a perception that 99-year leases pose any disincentive or insecurity to investment and development within the ACT. Even the Minister for Regional Development, Territories and Local Government, the Hon Alex Somlyay, acknowledged in his second reading speech that this bill is about removing

"the perceived disincentive to business and other investment....":

1.42 No matter what legislative changes are made to the ACT system of land management, the dissenting Senators maintain that commercial interests will continue to perpetuate and highlight any differences in the ACT land management system.

1.43 The dissenting Senators believe that on the evidence presented this perceived disincentive does not inhibit investment in the ACT and it is not restricting or hindering economic development within the Territory. Furthermore, changing the current legislation is not the most effective method of correcting this perception.

1.44 Paradoxically the Committee had submitted to it evidence that a change to 999 year leases may in fact cause a reduction in investment and development within the ACT. This would be caused by the land values artificially increasing as a result of the changed lease period and hence increasing the costs to new businesses establishing in Canberra.

1.45 Furthermore 999-year leases increase the possibility for land speculation to also facilitate unrealistic increases in land prices, giving rise to instability in land management and planning system.

Commonwealth's Interest

1.46 The dissenting Senators believe that this Bill puts at risk the Commonwealths interest in terms of effective guardianship of the Australian Capital Territory's land. It must be remembered that the land of the ACT was purchased and improved through public investment by the Commonwealth and remains a valuable asset.

1.47 The evidence provided to the committee highlights the necessity for effective land management and planning by the ACT Government and this interest is in fact complementary to those of the ACT community.

1.48 The dissenting Senators believe that as the Commonwealth purchased land to establish the Australian Capital Territory at tax payers expense it is not reasonable to allow the ACT Government to, in effect, give this land over to private interest with no financial benefit for the Commonwealth tax payer or the ACT community.

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1.49 Moreover, the ACT tax payer is severely disadvantaged by the ACT Government forgoing its revenue raising capacity from its major source of income.

Conclusions and Recommendations

1.50 The dissenting Senators paid close attention to all the submissions presented to the Committee and to the evidence given by witnesses at the public hearings of the inquiry. They find that the majority of the submissions supporting the Bill, particularly that of the ACT Government, were weak in argument and lacked a factual basis for their propositions.

1.51 It is also considered that this Bill will not achieve its stated aims of addressing a perceived disincentive to business and other investment in Canberra. Dissenting Senators believe that the perceived barriers will remain even if this Bill, and similar legislation in the ACT Legislative Assembly, is passed.

1.52 Considering the lack of preparation or understanding by the ACT Government with respect to implementing such a change to land management and the opposition to the Bill, the dissenting Senators are not satisfied that the passage of the Bill should be supported.

Recommendation

1.53 The dissenting Senators recommend that the A u s tr a lia n C a p ita l T e rrito ry (P la n n in g & L a n d M a n a g e m e n t) A m e n d m e n t B ill 1 9 9 7 be rejected.

Senator Kate Lundy Senator Kerry O'Brien Senator Lyn Allison

A P P E N D I X 1

RURAL AND REGIONAL AFFAIRS AND TRANSPORT LEGISLATION COMMITTEE

SUBMISSIONS RECEIVED ON THE

A U S T R A L I A N C A P IT A L T E R R IT O R Y (P L A N N IN G A N D L A N D Μ Α Ν Α G E M E N T ) A M E N D M E N T B IL L 1 9 9 7

MARCH 1998

1. Barry Raison - Curtin ACT 2. Colliers Jardine (ACT) Pty Limited Canberra 3. Professor Max Neutze 4. Simon Fisk - Kaleen ACT

5. Jack Marshall - Torrens ACT 6. Master Builders Association Of The ACT 7. Richard Ellis (Australian Capital Territory) 8. Housing Industry Association Limited

9. Australian Institute of Valuers and Land Economists 10. Property Council of Australia 11. Real Estate Institute of the ACT Ltd 12. Professor Patrick Troy 13. ACT Government 14. Michael Moore, MLA

15. Lend Lease Property Services 16. Simon Corbell, MLA 17. Property Owners' Association Ltd 18. Canberra Business Council Inc.

19. Jones Lang Wootton (ACT) Ltd .

20. Commonwealth Department of Transport and Regional Development 21. Lyneham and O'Connor Residents Association 22. ACT & Region Chamber of Commerce & Industry 23. Mark Dunstone, Watson ACT

24. Julie P Smith, Watson ACT 25. North Canberra Community Council Inc 26. Australian Democrats (Australian Capital Territory Division 27. Brian Barlin 28. F E Peters

29. Terence And Deborah Dwyer

A P P E N D I X 2

LIST OF W ITNESSES APPEARING BEFORE THE COMMITTEE

Monday, 23 March 1998 Committee Room 2S1 Parliament House, Canberra

Noel McCann, Principal Partner, McCann and Associates

Bryan Nye, Chief Executive Officer, Australian Institute of Valuers and Land Economists

Barrymore Raison, Australian Institute of Valuers and Land Economists

Anthony Hedley, Property Council of Australia

James Service, President, Property Council of Australia (ACT Division)

Nicholas Lourandos, President, Canberra Property Owners Association

Ross Cook, Manager, Corporate Policy, Planning and Land Management, ACT Government

Rodney Gilmour, Chief Executive, Department of Urban Services

Lincoln Hawkins, Executive Director, Planning and Land Management

Gary Humphries, Deputy Chief Minister, ACT Government

Professor Graeme Neutze

Professor Patrick Troy

Michael Moore, Member, Australian Capital Territory Legislative Assembly

Wednesday, 25 March 1998 Committee Room 2S1 Parliament House, Canberra

Merrilyn Chilvers, Director, Australian Capital Territory Liaison Unit Department of Transport and Regional Development

Dianne Gayler, Assistant Secretary, Australian Capital Territory Liaison Unit Departmnt of Transport and Regional Development

Rodney Grose, Acting Chief Executive, National Capital Authority

Mark Dunstone, Private Citizen

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A P P E N D I X 3

List of Reports on the ACT Leasehold System 1973-1998

Commission of Inquiry into Land Tenures, First report, November 1973 (Chair: R. Else- Mitchell), Govt. Printer, Canberra, 1975.

Commission of Inquiry into Land Tenures, Final report, February 1976 (Chair: R. Else- Mitchell), AGPS, Canberra, 1976.

Joint Committee on the Australian Capital Territory, Planning in the ACT: procedures, processes and community involvement, March 1979 (Chair: J.W. Knight), AGPS, Canberra, 1979.

Committee of Review of the National Capital Development Commission, Canberra planning and development: report o f the Committee o f review o f the role and functions o f the NCDC, July 1983 (Chair: G.M. White), AGPS, Canberra, 1983.

Joint Sub-Committee on the Canberra Leasehold System, Report on the Canberra leasehold system, (Chair: J.V.Langmore), AGPS, Canberra, 1988.

J. Mant, A further report on the planning system for the ACT, 1989.

ACT Priorities Review Board, Priorities for improved public sector management, Canberra, 1990.

Access Economics, An economic assessment o f the betterment issues in the ACT, 1992.

R.K.Todd, Report of inquiiy into planning and development proposals, Section 22 - Braddon, ACT Government, Canberra, 1993.

R.B. Lansdown, Australian Capital Territory residential redevelopment review: report to the Minister for the Environment, Land & Planning (ACT), Canberra, 1994.

ACT Legislative Assembly, Standing Committee on Planning, Development and Infrastructure, Inquiry into possible changes to planning legislation in the ACT, Canberra, 1994.

ACT Department of the Environment, Land and Planning, Draft process review report, December 1994.

ACT Board of Inquiry into the Administration of Leasehold, Report into the administration o f the ACT leasehold, November 1995 (Chair: P. Stein), Publications and Public Communication, Canberra, 1995.

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The Parliam ent of the Commonwealth o f Australia

PRIM ARY INDUSTRIES AND ENERGY LEGISLATION AM ENDM ENT BILL (NO. 3) 1997

- · -

Report by the Senate Rural and Regional Affairs and Transport Legislation Committee

June 1998

© Commonwealth o f Australia 1998 ISSN 1038-2755

This document was produced from camera-ready copy prepared by the Senate Rural and Regional Affairs and Transport Legislation Committee, and printed by the Senate Printing Unit, Department of the Senate, Parliament House, Canberra.

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MEMBERS OF THE COMMITTEE

Members

Senator Winston Crane - LIB, Western Australia Chairman Senator Kerry O’Brien - ALP, Tasmania Deputy Chairman Senator Paul Calvert - LIB, Tasmania Senator Michael Forshaw - ALP, New South Wales Senator Julian McGauran - NP, Victoria Senator John Woodley - AD, Queensland

P a r tic ip a tin g M e m b e r s

Senator Abetz ,

Senator Brown Senator Colston Senator Eggleston Senator Gibbs

Senator Ian Macdonald Senator Margetts Senator Schacht Senator West

Senator Bartlett ·

Senator Brownhill Senator Conroy Senator Faulkner Senator Harradine

Senator Sandy Macdonald Senator Murphy Senator Sherry

Senator Boswell Senator Chapman Senator Cook Senator Ferris

Senator Lundy Senator Mackay Senator Neal Senator Tierney

C o m m itte e S e c r e ta r ia t

Mr Andrew Snedden (Secretary to the Committee) Mr John O'Keefe (Senior Research Officer) Ms Trish Carling (Estimates/Research Officer) Ms Judith Wuest (Executive Assistant)

Telephone (02) 6277 3510 Facsimile (02) 6277 5811

Internet www.aph.gov.au/senate Email rrat.sen@aph.gov.au

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TABLE OF CONTENTS

C H A P T E R 1 1

COMMITTEE'S INQUIRY

Referral of the Bill

Conduct of the Inquiry

Consideration of the Committee's Report

Acknowledgements

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CHAPTER 2 3

PROVISIONS OF THE BILL 3

Outline of the Bill 3

Provisions of the Bill as they relate to the matters referred to the Committee 4

CHAPTER 3 5

INTRODUCTION 5

Issues Considered by the Committee 5

Minister's Advice on Matters Raised at the Committee's Hearing 8

CHAPTER 4 11

CONCLUSIONS AND RECOMMENDATIONS 11

Introduction 11

Recommendations 11

DISSENTING REPORT

Senator Kerry O'Brien, ALP; Senator Michael Forshaw, ALP

APPENDICES

Appendix 1 List of Submissions Received

Appendix 2 List of Witnesses Appearing Before the Committee

Appendix 3 Supplementary Submission by the Minister for Resources and Energy

C H A PTER 1

COM M ITTEE'S INQUIRY

Referral of the Bill

1.1 On 25 March 1998, the Selection of Bills Committee recommended to the Senate, and the Senate agreed, that the Primary Industries and Energy Legislation Amendment Bill (No. 3) 1997 (the Bill) be referred to the Rural and Regional Affairs and Transport Legislation Committee for consideration and report by 13 May 1998. On 12 May 1998, the Senate agreed that the time for preparation and presentation of the Committee's report be extended to 2 June 1998. This date was extended further to allow the Committee to complete its report and present it to the Senate by 24 June

1998. .

1.2 The Bill was referred to the Committee for examination of its provisions as they relate to amendment of one Act, the Primary Industries and fsnergy Research and Development Act 1989. The causes of the Bill which give effect to this amendment are clauses 44 to 48 of the Bill.

1.3 In its report to the Senate, the Selection of Bills Committee drew attention to three matters that were of concern with the Bill. These were as follows:

1. $3.6 million taken from the FRDC is voluntary money from industry and State governments - the Commonwealth has no right to pilfer such funds.

2. Fisheries are in dire need of more research dollars not less.

3. The FRDC does not have reserve funds and will not be able to meet its research commitments.1

Conduct of the Inquiry

1.4 In light of the matters raised by the Selection of Bills Committee in its report to the Senate, the Committee did not advertise the reference or inquiry in the media, but directly invited interested bodies from the fishing and seafood industries, and some state governments, to make written submissions to the inquiry. Following receipt of twenty written submissions, the Committee decided to hold a public hearing

on the Bill on 28 May 1998.

1.5 A list of those who made written submissions to the Committee's inquiry is in Appendix 1.

1 Senate Selection o f Bills Committee, Report No. 3, 25 March 1998. Appendix 2.

Page 2 Chapter 1

1.6 A list of those who presented evidence to the Committee at the public hearing on 28 May 1998 is in Appendix 2.

1.7 The Committee's public hearing on 28 May 1998 was held in Canberra. Certain supplementary information was sought by the Committee on matters raised by witnesses at the hearing, and was provided to the Committee following the hearing.

1.8 A supplementary submission provided to the Committee by the Minister for Resources and Energy, the Hon Senator Warwick Parer, in relation to matters raised during the Committee's hearing is in Appendix 3.

Consideration of the Committee's Report

1.9 The Committee met on 22 June 1998 to consider its report on the Bill.

Acknowledgements

1.10 The Committee acknowledges the assistance and contribution made to its inquiry by all those who prepared written submissions. The Committee also acknowledges the assistance provided at the public hearing on the provisions of the Bill, and the prompt provision of supplementary submissions and evidence to it, to enable completion of its report to the Senate.

1.11 The Committee also acknowledges, once again, the considerable assistance provided to the Committee on examination of this Bill by the publications of the Parliamentary Library Information Research Service.

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C H A PTER 2

PROVISIONS OF THE BILL

Outline of the Bill

2.1 The purpose of the Bill is to introduce amendments to a number of Acts, the responsibility of the Minister for Primary Industries and Energy. The Bill is an omnibus Bill, and amends fifteen principle acts.

2.2 Clauses 44 to 48 of the Bill propose amendments to the Primary Industries and Energy Research and Development Act o f 1989. Specifically, the Bill proposes in those clauses a reduction in the amount of monies appropriated during financial year 1997-98 for payment to the Fisheries Research and Development Corporation

(FRDC) in the sum of $3,612,000.

2.3 The relevant part of the Explanatory Memorandum for the Bill reads as follows:

The amendment to the Primary Industries and Energy Research and Development Corporation Act 1989 reduces the Commonwealth's contribution to the Fisheries Research and Development Corporation in the 1997-98 financial year by $3,612 million. Of the savings. $1.5 million is to go to the adjustment program for the South East Fishery

and the balance towards helping to pull back the Budget deficit.

The saving is made possible because the Corporation's sound financial management has left it with substantial reserves. It is also considered that the saving will leave the Corporation with sufficient funds to continue operations and will not affect research priorities in

the long term.

The Government remains a strong supporter of fisheries research and has set aside almost $8 million of Commonwealth funds in the budget under the Primary Industries and Energy Research and Development Act 1989 for fisheries research.

2.4 In the Minister's Second Reading Speech, the Minister noted

With regard to the amendments to the Primary Industries and Energy Research and Development act 1989, the Government proposes to reduce Commonwealth funding to the Fisheries Research and Development Corporation in the 1997-98 financial year by $3,612 million. Of the money saved,$1.5 million is to go to

the adjustment program for the South East Fishery and the balance towards helping to pull back the Budget deficit.

Page 4 Chapter 2

Provisions of the Bill as they relate to the matters referred to the Committee

2.5 As noted above, clauses 44 to 48 of the Bill are the only part of the Bill referred to the Committee for investigation for inquiry and report. The effect of the clauses is spelt out above.

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C H A PTER 3

INTRODUCTION

3.1 The Committee addressed a number of issues relating to the clauses of the Bill (clauses 44 - 48) which were the subject of the Committee's examination of the Bill.

3.2 Issues considered by the Committee are in written submissions from government, industry and research bodies, and evidence received by the Committee at its public hearing on 28 May 1998. In addition the Committee was provided with a supplementary submission on matters raised at the Committee's hearing, by the

Minister for Resources and Energy, Senator the Hon W Parer.

Issues Considered by the Committee

3.3 Views put to the Committee' on the reduction of the amount of money available to the Fisheries Research and Development Corporation (FRDC) in the 1997-98 financial year, were that, at best the decision was unfortunate, and at worst would have some long term effect on fisheries research.1

3.4 In its submission to the Committee, the Fisheries Research Advisory Committee, highlighted, as did other submissions that it appeared reduction in research funding to the FRDC was not applied to other research and development bodies within the Primary Industries and Energy portfolio.

3.5 In its submission, the Australian Seafood Industry Councilk told the Committee

3.6 It appears to the Committee, that submissions voicing alarm and

disagreement with the proposed re-allocation of funds to the FRDC, have been under the impression that the moneys were removed from the FRDC budget, in a discriminatory manner, and that no account had been taken of forward commitments or prudence on the FRDC's part in preserving its budget situation, in light of its forward commitments for research.

3.7 In discussions with the Committee, the Minister for Resources and Energy, Senator the Hon W Parer, described the decision to reallocate moneys from the FRDC's 1996-97 budget as follows:

As you are aware, $6.9 million was made available in the 1996-97 budget to fund an adjustment program for the South East Fishery. This was something that was absolutely essential. South East Fishery 1

1 See submissions 4, Queensland Fishing Industries Advisory Committee; 5 Northern Territory Government, Fisheries Division; 6, Victorian Fishing Industries Federation, and 13, 14 Queensland Government and South Australian Government.

Page 6 Chapter 3

was in total disarray. There was litigation from many quarters going back years, and it was essential that it was fixed up. So I appointed a South East Fishery adjustment working group to have a look at the whole process and come up with recommendations, which they did.

Some $1.5 million was appropriated in the budget, and $5.4 million was available from a fund, the national fisheries adjustment program. The program had two elements based on the recommendations of the South East Fishery working group. One was targeted financial assistance offered to 17 eligible operators and the second part was a permit offered to all operators in the fishery to reduce the effort.

The program has now been completed successfully. Sixteen operators receive targeted financial assistance to the total of $2,297,176. Some 27 operators elected to sell their fishing permits under the scheme for a total cost of $1,714,006. A further $200,000 was allocated to DPIE to administer the scheme. A total of $4,211,182 was used to fund the program, leaving at least $2,688,818 in the national fisheries adjustment program.

Just by way of background, the NFAP, or national fisheries adjustment program, was established in 1985 with initial funding from the government of $3 million to fund an adjustment program on the Northern Prawn Fishery. The fund was extended to other fisheries in 1986 with an allocation of a further $6 million. The purpose of the fund is to provide loans or grants to specific fisheries to assist with restructuring. The fund is administered by the Australian Fisheries Management Authority, AFMA, but all surplus expenditure proposals require approval of the minister.

Any funds surplus to immediate requirements are invested to ensure a market return on those funds, with earnings being returned to the national fisheries adjustment program. This urgently needed adjustment program was made possible because of a one-off saving and the Commonwealth's contribution to FRDC. The decision was not taken lightly, but it was considered the saving would leave FRDC with sufficient funds to continue operations without affecting research priorities in the longer term.

Both the chair of FRDC and the executive director were consulted and were advised of the decision prior to the announcement being made public. FRDC is able to fully meet its current and forward commitments, and it has committed a substantial amount of funding for fisheries related research in 1997-98, despite the budget reduction.

The FRDC is the largest provider of funding for fisheries research in Australia. It was established within the R&D corporation policy framework operations in 1992 with the aim of providing a planning and funding mechanism for increasing industry investment in and

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improving the cost-effectiveness of fisheries research for both state and Commonwealth managed fisheries.

Commonwealth funds are provided to match dollar for dollar industry contributions up to 0.25 per cent of the gross value of production of the Australian commercial fishing industry. In addition - and this is different from most other research type matching funds -

the Commonwealth provides unmatched funding equal to 0.5 percent of the industry's gross value of production. As you would understand, it is usually matched dollar for dollar. This is an additional amount.2

3.8 In discussions with the Committee, the Executive Director of the FRDC, Mr Dundas-Smith, told the Committee that the reduction of research funding for 1997-98 to the FRDC, would act as a precedent, for future reductions in funding.

3.9 Mr Dundas-Smith told the Committee

To pick up on one of your queries earlier on about whether the fishing industry is being singled out - it is. The comment was made just a minute ago about other R&D corporations taking a cut too. Let us look at those other R&D corporations. None of them has an

industry base. The energy corporation was referred to. It was abolished this year, and it did not have an industry base. In the previous years money was taken from land and water and the rural industry's R&D corporation. They are not industry based R&D

corporations. So the impact of government cutting funds from them is a lot less than the impact downstream, as Mr Nagle said, of cutting money from the Fisheries Research and Development Corporation.

In summary, I think the south-east fishery adjustment program is a bit of a red herring. No, we do not have reserves. In fact, we have forward commitments of $33 million. Mind you, that is pretty small compared to about $230 million of some of the other R&D

corporations. It is locked into agreements. Will the $3.6 million impact on future R&D? Absolutely, and I want to pick up on that one.

Apart from the downstream effects on industry, there is another aspect to this. This document says that the FRDC should take control and coordinate all the fisheries and marine research. The only way you can do that is to invest jointly in projects. So any lessening of

our ability to fund projects means lessening of our ability to ensure there is no duplication, to ensure that research is properly directed in Australia.

It could be argued - and I have heard it here today - that the government has actually invested more money in fisheries and

2 Evidence. Canberra, p. 10

1.

Page 8 Chapter 3

marine. If that is referring to money that is going into the Australian Institute of Marine Science and CSIRO, for example, that money is used to partner projects that we fund. Very rarely will CSIRO and AIMS go out and spend research money on projects that we do not plan, fund and manage. As this document has recognised, we set the priorities through a very elaborate structure nationwide called fisheries research advisory bodies in every state. In some states they are appointed by state ministers to determine the priorities.

3.10 In relation to the forward research commitments, Mr Dundas-Smith told the Committee

However, all that was required for the adjustment program to date was $4.2 million. If you take $4.2 million from $6.9 million, that leaves $2.7 million. Why would you bother adding $1.5 million to it? I do not know the detail, but I suspect that the $3.6 million cut from us has gone straight to consolidated revenue where it sits and stays. That is all right. If we are all sharing this load equitably - in other words, all the R&D corporations are coughing up some of their equity that they have got clearly identified in these annual reports - that is fine. But, the FRDC, the fishing industry, is the most vulnerable and the one that is most in need of R&D.

Minister's Advice on Matters Raised at the Committee's Hearing

3.11 In a letter dated 15 June 1998, the Minister for Resources and Energy, replied to a number of matters raised at the Committee's hearing, particularly by Mr Dundas- Smith of the FRDC. This letter is reproduced as Appendix 3 to the Committee's report for the information of Senators. The essential points in the Minister's advice to the Committee are as follows:

- moneys saved from the FRDC contribution by the government, have been paid as to the $1.5 million to fund the South East Fishery Adjustment Program (SEFAP)

- the government's actual expenditure in SEFAP was $4.2 million rather than $6.9 million, due to budget costs of a permit buy out scheme. The budget for permit buy out was $4.4 million; the actual expenditure was $1.7 million with twenty seven operators deciding to sell their permits .

- the Tasmanian Government's decision to reduce funding for the FRDC was totally unrelated to the government's budget announcement for 1997-98 funding of the FRDC. The Tasmanian Government has apparently contributed $50,000 to the FRDC during the current year.3

3.12 On a more general point, the Minister informed the Committee that the FRDC was not 'singled out’ for a one-off reduction in its funding. In fact, in the 1996-

. >

3 See Appendix 3.

Page 9

97 budget the government implemented reductions of a similar nature for the following research and development corporations

Land and Water Resources Research Development Corporation ($1 million); Rural Industries Research and Development Corporation ($5 million); Energy Research and Development Corporation ($6 million)4

3.13 In the Minister's letter to the Committee, at page 3, there is a table setting out the current funding arrangements for Primary Industries R & D Corporations in total.

3.14 In relation to a claim made by Mr Dundas-Smith that the reduction in funding to the FRDC reduced by $3.6 million projects that could have been carried out by other bodies, the Minister advised in his letter

Research organisations such as the Commonwealth Scientific and Industrial Research Organisation (CSIRO), the Australian Institute of Marine Science (AIMS), and the state agencies fund about 40% of Australia's fisheries research without reference to FRDC's priority

setting process. It is not true to slay that their work is directed by the whims of their researchers. Their research priorities are set in close collaboration with fisheries managers and the industry.

■A

4 See Appendix 3.

CHAPTER 4

CONCLUSIONS AND RECOM M ENDATIONS

Introduction

4.1 The Committee has considered the Primary Industries and Energy Legislation Amendment Bill (No. 3) 1997, as the Bill applies to the reduction of Commonwealth funding to the Fisheries Research and Development Corporation in the 1997-98 financial year.

4.2 Submissions to the Committee have indicated that government, industry and research bodies in the area of fisheries research in Australia are concerned that the reduction in funding represented by the provisions of the Bill, will represent a permanent cut to the FRDC's funding.

4.3 The Committee has considered these representations, and the evidence made to it at public hearing and in a written submission from the Minister for Resources and Energy, while this evidence has clarified the issues relating to the funding re­ allocation for 1997-98, the Committee notes that the explanations provided to it, in the

end, have provided considerably more detailed information than was contained in the second reading speech and explanatory memorandum for the Bill.

4.4 The Committee considers also that, in the matter of funding of industry research, clear advice and detailed explanation information to bodies affected by a government decision in this area is very important so as to ensure that Australia's R & D activities are not reduced, (even temporarily), without good reason.

Recommendations

4.5 The Committee having considered the Primary Industries and Energy Legislation Amendment Bill (No. 3) 1997 recommends that the Bill be passed by the Senate without amendments.

Senator Winston Crane Committee Chairman 24 June 1998

DISSENTING REPORT FROM

SENATOR KERRY O’BRIEN AND SENATOR MICHAEL FORSHAW

In its 1997/98 Budget, the Federal Government announced a cut of S3.6m to Fisheries R&D Corporation reserves. At the time of the cut, the Government argued it was justified because the FRDC had displayed prudent financial management and because the funds were to be used to offset expenditures elsewhere on fisheries related matters.

The original proposal was for the Minister for Resources and Energy to direct the FRDC Board to hand back the funds from reserves. It was not until well after the Budget that this option was found to be unworkable. Instead, the Primary Industries and Energy Legislation Amendment Bill (No.3) 1997 was needed to effect a one-off cut to FRDC's annual allocation.

In evidence to the committee the Australian Seafood Industry Council (ASIC) the peak body representing the interests of the commercial fishing, aquaculture and the broader seafood industry, argued the cut was a very shortsighted move.

The Council argued the cut could do lasting damage to fisheries R&D effort far beyond that attributable to its quantum. > ■ ■ ■ ■ · -

ASIC also argued that the Government’s action in cutting research funding in this way implied that 'prudent financial management' of research monies was being actively discouraged.

The ASIC referred to FRDC estimates suggesting the 60% approval rate for applications for research funds would probably drop to around 50% in 1998/99 because of the Budget decision.

In evidence to the committee the Executive Director of the FRDC Mr Dundas -Smith stated that claims the corporation had accumulated reserves so as to allow a reduction in this year's Commonwealth contribution was not true.

He said the FRDC in fact had accumulated forward commitments of $33m and there was no 'reserve' identified in its accounts. This forward commitment was consistent with other R & D Corporations and represented legal agreements between R & D

Corporations and research providers.

Senator O’Brien and Senator Forshaw consider the actions of the Government in cutting research funding for the fishing industry to be shortsighted and likely to have an adverse impact of the long-term sustainability of the industry.

Recommendation

Senators’ O’Brien and Forshaw recommend that clauses 44 and 45 of the Primary Industries and Energy Legislation Amendment Bill [No.3] 1997 be deleted.

A P P E N D I X 1

LIST OF SUBM ISSIONS RECEIVED FROM ORGANISATIONS AND INDIVIDUALS

Submission Number Name

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

Australian Seafood Industry Council

Western Australian Fishing Industry Council Inc.

Recfish Australia

Queensland Fishing Industry Research Advisory Committee

Department of Primary Industry and Fisheries

Victorian Fishing Industry Federation

Seafood Training Australia

Australian Seafood Industry Council Ltd

Northern Prawn Fishery Industry Organisations

Australian Prawn Promotion Association Ltd

Australian Aquaculture Forum

SA Fisheries Research Advisory Board

Queensland Government (Minister for Primary Industries)

Minister for Primary Industries, Natural Resources (SA Government)

Fishing Industry Research Advisory Committee

Ocean Watch

Fisheries Research & Development Corporation

Minister for Primary Industry and Fisheries Western Australia

Minister for Primary Industry and Fisheries, Minister for Racing (Tasmanian Government)

Senator Warwick Parer, Minister for Resources and Energy

• ύ

A P P E N D I X 2

LIST OF WITNESSES APPEARING BEFORE THE COMMITTEE

T h u rsd a y , 2 8 M a y 1 9 9 8 C o m m itte e R o o m 1 S 6

P a r lia m e n t H o u s e

C a n b e rra

PRIM ARY INDUSTRIES AND ENERGY LEGISLATION AM ENDM ENT BILL (NO. 3) 1997

A u s tra lia n S eafood I n d u s try C o u n c il B ill N agle, C h ief Executive O fficer

A u s tra lia n P ra w n P ro m o tio n A sso c ia tio n L td C harles W iloughbv, E xecutive O fficer

D e p a rtm e n t o f P rim a ry I n d u s trie s a n d E n e rg y Senator the Hon W arw ick Parer, M inister for Resources and Energy Tony B attaglene, D irector, C om m onw ealth Fisheries P9oiicyu

F ish e ries R e se a rc h a n d D e v elo p m en t C o rp o ra tio n Peter D undas-Sm ith, E xecutive D irector H elen K ing, Business M anager

l

A P P E N D I X 3

J v AUSTRALI A . &

P A R L I A M E N T O F A U S T R A L I A - T H E S E N A T E

SENATOR WARWICK PARER Minister for Resources and Energy Liberal Senator for Queensland

Mr A ndrew Snedden Secretary Rural and Regional Affairs and T ransport Com mittee

Parliam ent H ouse ] 7 JUN 1998

C anberra ACT 2600

Dear A ndrew .

Primary Industries and Energy Legislation Amendment Bill (No 3)

I am w riting to m ake a clarification to the table on page 3 of Senator Parer's supplem entary subm ission on the above Bill.

The reference to RIRDC in the first line of the table relates to its core activities, w hich are funded by an unm atched Parliam entary appropriation.

RIRDC is also responsible for adm inistering the funds of the Dried Fruits R&D Council, and a num ber of industry sub-accounts, including accounts for the buffalo, chicken m eat, deer, egg, honeybee, and rice industries, am ongst

others. These activities are funded by industry levies and matching C om m onw ealth funding.

'Co m m o n w e a l t h p a r l i a m e n t o f f i c e s w a t e r f r o n t p l a c e l e v e l 3 6 i e a g l e s t B r i s b a n e o l d a o o o TEL· (07) 3 3 0 9 8 1 1 1 FAX: (07) 3 3 0 9 8 1 0 0

JtS,;

P A R L I A M E N T O F A U S T R A L I A - T H E S E N A TE

SENATOR WARWICK PARER Minister for Resources and Energy Liberal Senator for Queensland

Senator W inston Crane Chairm an Rural and Regional Affairs and Transport Legislation Com m ittee Parliam ent H ouse Canberra ACT 2600

- ' S S e n a t e S a r a i ar_a

V C A T r a n s ; :

XV " z ^ X V;T,> :■■ ««

Dear Senator Crane

Primary Industries and Energy Legislation Amendment Bill (No 3) Supplementary Submission

The Rural and Regional Affairs and Transport Legislation Committee conducted a hearing on 28 M ay 1998 about the provisions of the Primary Industries and Energy Legislation Amendment Bill (No 3) 1997. 1 am writing to respond to som e of the issues raised at the hearing by the Executive Director of the Fisheries Research and D evelopm ent Corporation (FRDC), M r Peter Dundas-Smith.

M r Dundas-Smith asserted that the south east fishery adjustment program "is a bit of a red herring." (Hansard, pl7) He said: "I suspect that the S3.6 million cut from us has gone straight to consolidated revenue where it sits and stays." (Hansard, page 19).

The 1997-98 Budget included a $1.5 m illion m easure to fund the South East Fishery A djustm ent Program (SEFAP), in conjunction w ith funds from the National Fisheries A djustm ent Program (NFAP). The Budget also included the S3.6 m illion saving from FRDC. I have explained to the committee on a num ber of occasions that the G overnm ent was only able to carry out the adjustm ent program because of the offsetting saving from FRDC.

• ' j

PARLIAMENT HOUSE CANBERRA ACT 2600 TEL: (0 6 ) 2 7 7 7 d d O FAX: (061 2731

COM M ONW EALTH PARLIAMENT O F F IC E S W A TERFR O N T PLA C E LEVEL 36 1 EAGLE 5 T BRISBANE OLD 4 0 0 0 TEL: (0 7 ) 3 3 0 9 8111 FAX: (07) 3305

JUN.' 9 8 (MON) 1 6 : 2 0 SEN HON W PARER T E L : 6 1 7 3 3 0 9 8 1 0 0 P . 0 0 3

2

Mr Dundas-Smith was not a participant in the Expenditure Review Committee process. His comments were no doubt intended to assist the committee, but are best viewed as his personal opinion rather than as an authoritative statement of the facts.

Mr Dundas-Smith commented that the total buyout was $4.2 million, not $6.9 million, so there was change out of the current buyout from the National Fisheries Adjustment Program (Hansard, page 16)

The reduction in FRDC’s appropriation was derived from the 1997-98 Budget estimate o f the cost of SEFAP.

The Government’s actual expenditure on SEFAP was $4.2 million rather than S6.9 million, due to the lower than budgeted cost of the permit buyout scheme. The budget for the permit buyout was $4.4 million; the actual expenditure was $1.7 million, with 27 operators deciding to sell their permits.

It is clear from the number of operators that decided to sell their permits that most of the operators in the fishery are now confident about their future. They clearly anticipate that the value o f their permits will increase substantially in the years to come.

The saving will be retained in the NFAP and allocated to other urgent fisheries adjustment tasks.

Mr Dundas-Smith asserted that Tasmania had reduced its contribution to FRDC in 1997-98. He said that the Western Australian industry had expressed its concerns about the reduction. (Hansard, page 16)

Tasmania’s decision to reduce its funding for FRDC was totally unrelated to the Government's Budget announcement. The Tasmanian Government previously contributed to the corporation from its general revenue, as an interim measure until

the industry was able to collect the money itself or have the levy collected on its behalf. It advised the Tasmanian Fishing Industry Council (TFIC) in 1996 that it would be unable to make its full contribution in 1996-97 and that it would probably not be able to make any significant contribution in 1997-98.1 understand that the Tasmanian Government has, nonetheless, contributed $50,000 to FRDC this year. We will be matching their contribution.

Western Australia increased its contribution to FRDC in 1997-98 from $600,000 to $700,000.

In July 1997, both states endorsed the desirability of their industries contributing to FRDC the full 0.25% of their gross value of production.

Mr Dundas-Smith asserted that the fishing industry had been singled out (Hansard, page 17)

O

- JUN. ' 9 8 (MON) 1 6 : 2 1 SEN HON W PARER TEL: 61 1 3 3 0 9 8 1 0 0 P. 004

The Government did not single out FRDC for a one-off reduction in funding. In the 1996-97 Budget, the Government implemented one-off reductions in its appropriations to the following research and development corporations:

• Land and Water Resources Research and Development Corporation ($1 million). • Rural Industries Research and Development Corporation (S5 million). • Energy Research and Development Corporation ($6 million)1.

The Government has also implemented one-off reductions in the cash balances of a large number of other statutory authorities.

It is, accordingly, not credible to argue that FRDC was unfairly singled out by the Government. On the contrary, the Government recognised the importance of the fisheries subprogram by offsetting $1.5 million of the reduction through the establishment of SEFAP.

Mr Dundas-Smith attempted to draw a distinction between FRDC and tire research and development corporations listed above on the grounds that FRDC receives industry funding.

The table below summarises the current funding arrangements for primary industries R&D corporations. As the table shows, FRDC is a unique hybrid of the corporations that receive unmatched Commonwealth funding, and the corporations that receive Commonwealth funding on matching basis with industry.

R&D Corporation Unmatched Maximum Matching

Federal funding matching federal funding ratio funding

% of each induttry’i gross value of production

Land and water, rural industries varies* 0.00 -

Meat, grains 0.00 0.50 1:1

Forests 0.00 0.25 1:2

Fisheries 0.50 0.25 1:1

* The appropriations for LWRRDC and RIRDC art not determined by a statutory formula.

The Government is proposing to reduce its unmatched appropriation to FRDC, on the same basis that it reduced its unmatched funding for LWRRDC and RIRDC.

The Government is not proposing to reduce its matching funding. In 1997-98, we have matched every dollar that the industry has contributed to FRDC.

O

1 Tile Government announced in the 1997-98 Budget that the ERDC would be wound up.

,-JUN.' 9 8 (MON) 1 6 : 2 1 SEN HON W PARER T E L : 6 1 7 3 3 0 9 8 1 0 0 P. 0 0 5

Mr Dundas-Smith claimed that if FRDC had put its assets into property then it would have been forced to sell its building. (Hansard, page 18)

It is pointless to speculate on what the Government’s decision might have been if FRDC had invested in property. FRDC does not now, and did not at the time, have property assets.

. 4

Mr Dundas-Smith asserted that to take cash from FRDC did not make sense. (Hansard, page 19)

The Minister for Primary Industries and Energy, the Hon John Anderson MP, promised in the 1996 election campaign that we would resolve the endless wrangling and litigation in the SEF through mediation, not litigation. The committee will recall that the previous government mismanaged the allocation ofITQs in the fishery, with

the result that a number of operators suffered massive financial losses.

The previous government's incompetence created a number of debilitating management problems for the Government and AFMA. In particular:

• AFMA was unable to manage effectively the fishery, because its enforcement costs were very high, and it had difficulty controlling catch levels and finalising a statutory management plan.

• the issue consumed an enormous amount of AfM A’s time and resources, which slowed the development of management arrangements for the other Commonwealth fisheries.

• the wrangling soured the relationship between the Commonwealth and NSW on fisheries issues, making it impossible for the two governments to negotiate an Offshore Constitutional Settlement (OCS) arrangement.

• the high level of uncertainty discouraged operators from buying and selling quota. Unviable operators were unable to leave the fishery, because few operators were willing to take the risk of purchasing quota that could later be invalidated by the courts.

I considered that the stabilisation of the SEF was the most pressing fisheries issue confronting the Government. It was also an election commitment; and I take election commitments very seriously.

The Government decided that it was more urgent and important to stabilise the SEF than to pay FRDC its full unmatched contribution in 1997-98. The Government also considered the urgent importance of reducing the Budget deficit.

We did not make the decision to reduce FRDC’s appropriation lightly or hastily, and made it after considering a number of even less palatable alternatives. The decision was the only sensible one that could have been made in the circumstances.

■ · V

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5

Mr Dundas-Smith claimed that the reduction meant that there was $3.6 million worth of projects less that FRDC could lever from CSIRO, AIMS, and so forth to make sure they were properly directed. (Hansard, page 19)

Research organisations such as the Commonwealth Scientific and Industrial Research Organisation (CSIRO), the Australian Institute of Marine Science (AIMS), and the state agencies fund about 40% of Australia’s fisheries research without reference to FRDC’s priority setting process. It is not true to say that their work is directed by the whims of their researchers. Their research priorities are set in close collaboration with fisheries managers and the industry.

Last year, the Commonwealth and the states/temtories endorsed an agreed list of national research and development priorities for fisheries and aquaculture. The report will help research providers and funding bodies, including FRDC, to ensure that their research dollars are spent in the most effective way. The report will be a valuable input into the existing research planning systems used by research providers such as CSIRO and AIMS.

CSIRO has a comprehensive process for setting its research priorities, based on triennial plans for each sector of the economy and the environment. The organisation uses a network of sectoral advisory committees to provide input on the development

of the plans.

The members of the Marine Sector Advisory Committee are set out in attachment “A". The committee includes representatives o f all of the Commonwealth agencies with an interest in fisheries management. The committee includes three FRDC directors, including the Chairman of FRDC, Dr Russell Reichelt.

It is absurd to suggest that these key Australian fisheries managers and researchers are capable of setting appropriate priorities when they meet as FRDC directors, but are not capable of doing the same job as CSIRO advisers.

The Australian Institute of Marine Science has a similar process for setting its research priorities and approving projects. AIMS carries out its work under a three year research plan, which was developed after extensive consultation with the users of its research,

Both CSIRO and AIMS generate a substantial part of their revenue by carrying out contract research for other government agencies and industry, Their role as contract research providers helps ensure that their work is relevant to the needs o f government and industry.

There is no doubt that FRDC has a key role in Australian fisheries research, however, it is not plausible to argue that the reduction in its appropriation will result in the misdirection of research effort.

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6

Mr Dundas-Smith asserted that most fisheries were overexploited. (Hansard, pl9)

The Bureau of Resource Sciences (BRS) prepares a yearly resource assessment of the status of Commonwealth managed fisheries. In its latest report, it concluded that 3 fisheries/species groups were overfished, 11 were fully fished, 2 were underfished, and the status of 11 was uncertain.2 The three overfished species were southern bluefin tuna, school shark, and eastern gemfish. They clearly do not represent a

majority of the Commonwealth managed fisheries/species groups.

Mr Dundas-Smith said that it would be fine if all of the research and development corporations coughed up some of their equity. (Hansard, page 19)

I can assure the committee that the Government has no intention of reducing its matching funding to any of its research and development corporations, including FRDC.

Senator the Hon Warwick Parer Minister for Resources and Energy

: ;i

: Caton, A c t j l (eds). Fishery Status Reports 1997: Resource Assessments o f Australian Commonwealth Fisheries. Bureau o f Resource Sciences, Canberra, 1997. p2.

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Attachment “A”

CSERO Marine Sector Advisory Committee

Chairperson:

Professor Graeme Kelleher AO Vice Chair (Marine)

IUCN Commission on Natural Parks and Protected Areas

Dr Peter Bridgewater Chief Science Adviser Environment Australia

Mr Ron Eagle Consultant

Professor Helene Marsh Tropical Environment Studies and Geography James Cook University

Mr Richard Stevens* Managing Director Australian Fisheries Management Authority

Ms Mary Harwood** Assistant Secretary Parliamentary and Communications Branch DPIE

Mr Ted Loveday President Queensland Commercial Fishermens Organisation

Mr Peter O’Clery Director O’Clery and Associates

Dr Russell Reichelt* Director Australian Institute of Marine Science

* FRDC Director * Former Assistant Secretary, Petroleum and Fisheries Division, DPIE.

U

The Parliam ent of the Commonwealth of Australia

STEVEDORING LEVY (COLLECTION) BILL 1998 and STEVEDORING LEVY (IM POSITION) BILL 1998

Report by the Senate Rural and Regional Affairs and Transport Legislation Committee

June 1998

© Commonwealth o f Australia 1998 ISSN 1038-2755

s document was produced from camera-ready copy prepared by the Senate Rural and egional .Affairs and Transport Legislation Committee, and printed by the Senate Printing Unit, Department of the Senate, Parliament House, Canberra.

MEMBERS OF THE COMMITTEE

Members

Senator Winston Crane - LIB, Western Australia Chairman Senator Kerry O’Brien - ALP, Tasmania Deputy Chairman Senator Paul Calvert - LIB, Tasmania Senator Michael Forshaw - ALP, New South Wales

Senator Julian McGauran - NP, Victoria Senator Andrew Murray - AD, Western Australia *

P a r tic ip a tin g M e m b e r s

Senator Abetz Senator Brown Senator Colston Senator Eggleston Senator Gibbs

Senator Ian Macdonald Senator Margetts Senator Schacht Senator West

Senator Bartlett Senator Brownhill Senator Conroy Senator Faulkner

Senator Harradine Senator Sandy Macdonald Senator Murphy Senator Sherry

Senator Boswell Senator Chapman Senator Cook Senator Ferris Senator Lundy

Senator Mackay Senator Neal Senator Tierney

Senator A Murray is a substitute member of the Committee for the purpose of considering the Bills

C o m m itte e S e c re ta ria t

Mr Andrew Snedden (Secretary to the Committee) Mr John O'Keefe (Senior Research Officer) Ms Trish Carling (Estimates/Research Officer) Ms Judith Wuest (Executive Assistant)

Telephone (02) 6277 3510 Facsimile (02) 6277 5811

Internet www.aph.gov.au/senate Email rrat.sen@aph.gov.au

TABLE OF CONTENTS

CHAPTER 1 1

THE COMMITTEE'S INQUIRY 1

Referral of the Bill 1

Conduct of the Inquiry 2

Consideration of the Committee's Report 2

Acknowledgments 2

CHAPTER 2 3

PROVISIONS OF THE BILLS 3

A General Outline of the Bills 3

The Specific Provisions of the Bills 4

CHAPTER 3 7

ISSUES CONSIDERED BY THE COMMITTEE 7

Introduction 7

CHAPTER 4 . 19

CONCLUSIONS AND RECOMMENDATIONS 19

Introduction 19

Committee Conclusions 19

RECOMMENDATION REGARDING THE BILLS 20

DISSENTING REPORTS

Senator Kerry O'Brien, ALP; Senator Michael Forshaw, ALP

Senator Andrew Murray, Australian Democrats

APPENDICES

Appendix 1 List of Submissions Received

Appendix 2 List of Witnesses Appearing Before the Committee

C H A PT E R 1

THE COM M ITTEE'S INQUIRY

Referral of the Bill

1.1 On 14 May 1998, the Senate Selection of Bills Committee recommended to the Senate, and the Senate agreed, that the Stevedoring Levy (Collection) Bill 1998 and the Stevedoring Levy (Imposition) Bill 1998 (the Bills) be referred to Rural and Regional Affairs and Transport Legislation Committee for consideration and report by

22 June 1998. On 28 May 1998, the Senate agreed that the date for presentation of the Committee's report be extended to 23 June 1998.

1.2 The Bills were referred to the Committee for examination and report of their provisions, the Selection of Bills Committee recommending that the following matters in the Bills be subject to specific inquiry by the Committee:

• the ability of the Parliament to scrutinise the activities of the Maritime Industry Finance Company established by the Government to administer the scheme proposed by the Bills;

• the possibility that payments under Section 17 of the Stevedoring Industry Levy (Collection) Bill may be made directly or indirectly for redundancies of people unlawfully dismissed, whose employment is terminated in a way inconsistent with the

provisions of the Stevedoring Industry award or other industrial agreements, or when employment is terminated as a result of corporate restructuring;

• payments being made under section 17 of the Bill being directly or indirectly a substitute for appropriate redundancy provisions by employers of stevedoring labour;

• the effect of the levy on Bass Strait trade;

• the imposition of the levy on cargo and vehicles not handled by major stevedoring service providers and for official purposes; and

• the imposition of the levy on stevedoring companies who do not wish to access payments made under any scheme related to the Bill.' 1

1 Selection of Bills Committee, Report No. 6 of 1998, 13 May 1998.

• · j r (

Page 2 Chapter 1

Conduct of the Inquiry

1.3 In view of the short time provided for the inquiry and report on the Bill, the Committee wrote directly to interested trade unions, corporations, and government agencies that were interested in or affected by the Bills. In addition to directly seeking written submissions, the Committee advertised the terms of its inquiry in all capital city newspapers published on 23 May 1998. The newspaper advertisement, and invitations required written submissions to the inquiry on the Bills to be received by the Committee on 3 June 1998. To allow consideration of the views received by the

Committee, the written submissions received by the Committee were published on 9 June 1998. Submissions received after that date were published upon receipt by the Committee Secretariat.

1.4 A list of those who made written submissions to the Committee's inquiry is in Appendix 1.

1.5 The Committee held one public hearing on the Bills in Canberra on 15 June 1998. A considerable amount of supplementary information sought by the Committee at the hearing was provided following the hearing.

1.6 A list of those who presented evidence to the Committee at the Committee's public hearing is in Appendix 2.

1.7 Material provided to the Committee following its hearing is tabled with this report, together with submissions and Hansard of the hearing.

Consideration of the Committee's Report

1.8 The Committee met on 22 June 1998 to consider its report to the Senate on the Bills.

Acknowledgments

1.9 The Committee acknowledges the assistance and contribution made by all those who prepared submissions to the inquiry at short notice, and particularly to those witnesses who gave evidence at the Committee's hearing and subsequently provided supplementary evidence, also at short notice.

1.10 The Committee also acknowledges the considerable assistance provided to it by the Parliamentary Library Information Research Services, especially the PRS Digest examination of the Bills.

v >

C H A PTER 2

PROVISIONS OF THE BILLS

A General Outline of the Bills

2.1 The Bills are in a related package of legislation, and are:

• The Stevedoring Levy (Collection) Bill 1998, and

• The Stevedoring Levy (Imposition Bill 1998

2.2 The Bills provide for the payment by stevedoring companies operating in Australia of a levy on the loading and unloading of containers and self-propelled vehicles within Australia. There will be no levy on bulk and general cargo. The levies will be collected to meet the costs, over time, of payments made to redundant

stevedoring employees. The Bills propose that no monies will be directly paid from the consolidated revenue for the purpose.

2.3 The rate of levy that will apply, is to apply upon commencement of the legislation.

2.4 A maximum rate of levy is set at $10 per self propelled vehicle, and $20 per shipping container. The Bills provide for a lower rate of levy to be prescribed by regulations.

2.5 In his second reading speech, the Minister indicated that the proposed actual rates of levy will probably be $6 per vehicle and $12 per container. In his second reading speech, the Minister also indicated to the Government that the major stevedores operating in Australia have indicated that the levies will be absorbed, if set

at this level, so that it is expected there will be no overall increase in direct costs to shippers.

2.6 The proposed method of collection of the levy will is for stevedoring companies to prepare returns for submission to the Department of Workplace Relations and Small Business at regular intervals. Payment of the levy will accordingly be based upon the information provided in these returns. To ensure accountability, and accuracy in the levy calculations, the Bills provide for inspectors to be appointed with powers to access premises and ensure levies are properly assessed.

2.7 The Bills make no provision for a 'sunset' date by which the levy will terminate. In his second reading speech, the Minister indicated that a review o f the levy legislation and the rate of levy will occur within three years of commencement of the legislation.

2.8 The program contained in the Bills, which will be funded by the levy, will be administered by a corporation know as the Maritime Industry Finance Company (the

Page 4 Chapter 2

MIFCo) which will be a wholly owned commonwealth company limited by guarantee.

2.9 The Minister announced that the Chairman of the MIFCo is to be

Mr A Clark, AM, a managing partner of a major national and international accounting firm. Other directors of MIFCo will be appointed from the SES level of the Australian Public Service. The principle role of MIFCo is to provide payments to redundant stevedoring employees, as provided for in the Bills.

2.10 The MIFCo can borrow up to $250 million from financial institutions. These borrowings are subject to a Commonwealth guarantee. The cost of borrowings made under the Bills will be repaid, over time, from monies collected from the levy.

2.11 On 12 June 1998,the Minister announced that the Bills would be amended. As necessary, so that the levy would not apply to the movement of vehicles or containers on interstate trade within Australia, principally on the Bass Strait freight trade.

The Specific Provisions of the Bills

Stevedoring Industry Levy (Collection) Bill 1998

2.12 The Bill is divided into five parts. Part 1 is a preliminary part which deals with matters such as commencement, binding of the Crown, application of the Criminal code and some definitions.

2.13 Part 2 deals with the application of the levy (clauses 6-8). Clause 6 provides a detailed definition and description of the activities dealt with by the Bill, and which are accordingly subject to the levy. The levy is payable in respect of

• Loading a container onto a ship in Australia

• Unloading a container from a ship in Australia ; • Self-propelled loading of a vehicle onto a ship in Australia; and

• Self-propelled unloading of a vehicle from a ship in Australia

2.14 The levy is to have the following features

• The levy is payable irrespective of weight or contents of the container

• The definition of container is drafted so as to include several varieties of container

• The levy is not payable in respect of containers or vehicles unloaded for transhipment, or for re-positioning in the ship hold •

• The levy is not payable on containers unloaded where the most recent loading was subject to the levy (eg, no levy is payable on a container or vehicle loaded in Sydney and unloaded in Brisbane)

Page 5

2.15 Clause 7 specifies that the levy is intended to be payable by stevedores; namely those responsible for loading and/or unloading the containers and vehicles onto and from the ship. Accordingly, the responsible person does not include a person acting in the capacity of an agent, owner or charterer of a ship. Subclause 7(2) provides that where the responsible person is a body corporate, the responsible person

and each other person that was a 'related body corporate' at the time of loading or unloading are jointly and severally liable for the levy. The Bill applies the definition of 'related body corporate' used in the Corporations Law.

2.16 Clause 8 specifies the first and final levy month under the scheme. The clause provides for there to be two months between notification of Royal Assent to the legislation, and the first payment of levy, so as to allow time to those liable to prepare for the scheme. The Department administering the scheme will be the

Department of Workplace relations and Small Business.

2.17 Part 3 (clauses 9-12) provides for collection of the levy, including returns, penalties for late payment and recovery of payments and penalties.

2.18 Part 4 (clauses 13-19) provides for a number of miscellaneous matters including provision of access to premises (clause 13), appointment of inspectors to ensure compliance with the scheme (clause 14), offences under the legislation (clause 15), and delegations by the Minister (clause 16).

2.19 Clause 17 sets out payments which are allowable under the Bill. The explanatory memorandum for the Bill states

The Minister will be able to authorise payments directly or indirectly, in connection with the restructuring or reform of the stevedoring industry. The Consolidated Revenue Fund is to be appropriated for these payments.

It is intended, for instance, that the minister be able to make payments that are equivalent to amounts redundant stevedoring employees would normally expect or receive upon termination of their employment on the ground of redundancy. This may include

redundancy pay, payments in lieu of notice and payments to meet the costs of establishing, financing and managing administrative arrangements put in place by the Commonwealth to ensure redundant stevedoring employees received such payments. It is

expected that any administrative arrangements would apply to redundancies in the stevedoring industry for a limited period only.

The Minister is to have flexibility as to whom such amounts are paid· The Minister will be able to make payments direct to employees, to an employer or other entity that has paid monies direct to employees or to entities such as financial institutions that may have financed

such payments. The amounts paid to such entities may include the cost of finance.

Depending on the number of redundancies, and given the intended level of the levy, the levy may apply for several years to cover the

1

Page 6 Chapter 2

cost to the Commonwealth of such payments. Because of the uncertainties surrounding the total cost of the arrangements, there is no provision for the automatic termination of the levy. 1

2.20 Clauses 18 and 19 deal with discharge of any surplus levy received by the Commonwealth in excess of the costs of the scheme prosed by the Bills package.

Stevedoring Industry Levy (Imposition) Bill 1998

2.21 This bill deals with the imposition of the levy. Apart from formal parts of the Bill, clause 5 sets the maximum rate of the levy to be raised against containers and vehicles. The maximum rate is set at $20 for a container and $10 for a vehicle.

1 See, explanatory memorandum, p. 9-10, clause 17.

C H A PTER 3

ISSUES CONSIDERED BY THE COMMITTEE

Introduction

3.1 In the course of its examination of the Bills, and associated issues the Committee considered the following principal issues

• The likely operations and legal position of the Maritime Industry Finance Company Ltd (the MIFCo)

• The likely application and interpretation of provisions of the Stevedoring Industry Levy (Collection) Bill, especially the proposed application of clause 17 of the Bill

• Other matters, particularly the possible imposition of the levy on stevedoring companies who do not wish to access payments under any scheme related to the Bills

• The general nature of the legislation package and its effect on the users of Australian stevedoring services

The general nature o f the waterfront reform package and its effect on stevedores and the users o f Australian stevedoring services

3.2 The proposed scheme for reform of the Australian waterfront operations embodied in the Bills is set out in the document 'Waterfront reform. Seven Benchmark Objectives' (the benchmark objectives) issued by the Minister for Workplace Relations and Small Business, the Hon. Peter Reith, MP on 8 April 1998.'

3.3 As part of the announcement made by the Minister, there is a set of seven benchmark objectives which are the Government's aims for creating, through change, an internationally competitive and efficient waterfront.1 2

3.4 The benchmark objectives include 'an end to overmanning and restrictive workpractices' as a principal objective. It is under this objective that the proposed scheme embodied in the bills is proposed. Attached to the Minister's announcement were letters from P & O Ports and Patrick Stevedoring, the stevedoring companies currently accounting for some 95% of the Australian stevedoring industry, endorsing the benchmark objectives.3 In evidence to the Committee both companies repeated this endorsement.

1 'Waterfront Reform. Seven Benchmark Objectives. ’ Issued by the Hon Peter Reith, MP, Minister for Workplace relations and Small Business, 8 April 1998.

2 See 'Waterfront Reform', p. 9.

3 These letters are attachment Έ ' to the 'Waterfront Reform' document.

Page 8 Chapter 3

3.5 In its written submission to the Committee, Sea-Land (Australia) Terminals Pty Ltd, a stevedoring company currently operating in Adelaide, stated its objections to the assessment made by the Minister in the benchmark objectives paper.

3.6 Sealand advised the Committee its principal objections to the legislation are

• Sealand does not need to reduce or rationalise its workforce to achieve efficient manning and will, accordingly, not need to draw on the Government's redundancy funds

• Sealand and smaller stevedores should not be required to subsidise the redundancy payments of its competitors

• Stevedoring companies which intend rationalising or reducing their workforce should fund redundancies from their own resources

• Patrick and P&O have indicated in writing an ability to absorb the levy, thus removing the need for the levy

• P&O has indicated it will not draw on the Government redundancy fund, leaving Patrick as the sole beneficiary of the levy

3.7 In addition, Sealand objected to the Bills on the basis that the levy proposed is not a proper exercise of Parliament's power to make laws with respect to taxation; that the levy will act to discourage investment and employment in the stevedoring industry; a lack of consultation by the Government with participants in the industry (other than Patrick and P&O); and, the likelihood that the levy system will result in some stevedores subsidising others.4 5 The Sealand position on the scheme proposed by the Bills was supported by the Ports Corporation of South Australia.3

3.8 The Maritime Union of Australia (MUA) and the Australian Council of Trade Unions (ACTU) opposed the basis for the Bills as set out in the 'Waterfront Reform', and described the reasoning and basis for introducing the bills as flawed.6

3.9 In its submission, the MU A advised the Committee that, while opposing the proposed legislative machinery in the bills, the '...Union does not take in principle opposition to industry funded arrangements including levies for dealing with bona fide redundancy situations.'7

3.10 In evidence to the Committee, the National Secretary of the MU A, Mr Coombs advocated to the Committee the retention of the scheme previously in

4 Submission 12, Sealand (Australia) Terminals Pty Ltd, pp. 1-2.

5 Submission 10, Ports Corp South Australia.

6 Submissions 13 & 14, Maritime Union o f Australia; Australian Council o f Trade Unions, see sub. 13 pp.1-3; sub. 14, pp. 1-3.

7 Submission 14, p. 3.

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Page 9

operation for restructuring and reforming the waterfront which had as its central agency the Stevedoring Industry Finance Committee (SIFC).8

All that is required, as opposed to this process that we are involved in here, is for the levies to be reinstituted under the existing legislation by either one or other of the following: the Stevedoring Industry Finance Committee meeting and making such a

recommendation to the minister or by the minister in the first instance without even reference to the Stevedoring Industry Finance Committee. A process could be put in place based on the previous levy, which was in broad terms either man-hours worked or tonnage or both. It would be worth while to at least consider the benefit of

extending it equitably across the industry, as opposed to the somewhat restricted approach, as I understand it, of participating in this current process.9

3.11 In its discussions with the Committee, the Department stressed that the SIFC and its supporting legislation had been examined to determine whether it could be applied to the situation the Government addressed in the Seven Benchmark Objectives.

3.12 Mr Stewart-Crompton of the Department advised that

The levy imposed under the 1977 legislation was relatively complex. I think it is quite well known that there are still continuing difficulties in working out whether there were correct payments and what the redistribution of surplus levy and so forth should be. That

was, in part, a reflection of the nature of the levy arrangements. Under the proposed legislation, the system of levy will be much less complex, much simpler and more transparent in both its collection and application.

The 1977 legislation, which is still on the books, established a mechanism by which levy was imposed in respect of either the number of hours worked for bulk handling or, in other instances, the tonnage of cargo loaded or unloaded. The proposed mechanism,

unlike the previous mechanism, has no formal role for ships agents. The levy base is narrower, being based on containers and vehicles. It is simpler and there is a lower regulatory and administrative burden.

There was considerable confusion about the categories of cargo and whether declaration was by tonnage or worker hours under the previous system. That was, in part, a cause of some of the problems

that still remain in terms of levy collected. There was a considerable administrative burden on ships agents and shipping lines. For every cargo load on a vessel, a cargo declaration had to be submitted to the * 5 *

8 Evidence, 15 June 1998, p. 27

5 As above

O

Page 10 Chapter 3

stevedore which allowed the stevedore to pass on the full cost of the levy.

The 1977 arrangements are in the advanced stages of being wound up. That would have to be very carefully considered if we were to look at amending the legislation to give it another operation. There has been a considerable amount of audit work on that and we would certainly need to be extremely careful about grandfathering all of that work. The other aspect of the 1977 arrangements is, of course, that they were designed and adapted over time to deal with a

different system of employment in the industry. That is, in part, a n ' explanation for the nature of the design of the 1977 legislation and subsequent amendments.

In short, a fair deal of amendment would be required if that mechanism was necessary. I think, in fairness, one would have to say it is not impossible, but the view was taken that it was simpler and cleaner to start with a clean sheet of paper and set up a new levy regime.10 1 1

Absorption o f the levy by stevedoring companies

3.13 In its submission to the Committee, Sea-Land (Australia) Terminals Pty Ltd indicated that it opposed the legislation, on the basis that the major stevedores, Patrick and P & 0 Ports, had indicated, according to the government, they would absorb the costs of the levy raised on containers and vehicles in their costs and would not pass on the cost of the levy to consumers or users of stevedoring services. In discussions with the Committee P & O Ports, and Patrick, indicated that they had provided all advice to

the government that the levies will be absorbed in their stevedoring charges.11

3.14 The Committee pressed both P & 0 and Patrick on the means by which the levy would be expected to be absorbed, particularly as representatives of both stevedores told the Committee that the margins of the Australian stevedoring industry operates under are 'very thin' and added costs would be difficult to bear. Both companies told the Committee that the expected productivity improvements that would result in the reduction of the cost of labour, due to redundancies expected from the 'Seven Benchmark Objectives' scheme and would lead in then to increased margins, and increased funds availability which would allow the levy to be absorbed.12

10 Evidence, 15 June 1998, p. 43.

11 Evidence, p. 54, P & O; Evidence p. 62, Patrick.

12 Evidence, p. 58, P & O; Evidence p. 64, Patrick

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The likely operations and legal position o f the Maritime Industry Finance Company Ltd (the MlFCo)

3.15 The Selection of Bills Committee Report, as well as several submissions to the Committee, raised the question of accountability of the MIFCo to the Parliament

3.16 In its submission to the Committee, the Department of Workplace relations and Small Business (the Department) addressed this question and advised the Committee that the MIFCo is a company limited by guarantee and has been incorporated as such pursuant to the Corporations Law. In addition to the

requirements placed upon the MIFCo by the Corporations Law, the MIFCo is subject to the requirements placed upon all companies owned or controlled by the Commonwealth by the Commonwealth Authorities and Companies Act 1997} 3

3.17 Under that Act, there are specific requirements placed on Commonwealth companies in respect of accounting for their activities and expenditure to the responsible minister, the Minister for Finance, and to the Parliament.

3.18 Sections 36 to 41, and section 44 of the Act place a number of specific requirements on Commonwealth companies: the preparation of estimates, reports, accounts, interim reports (if required). The Act also provides for the provisions of 'special reports' to the responsible Minister on significant events, and 'operations'

(Sections 40 and 41).

3.19 The Department's submission also noted that

Any payments authorised under the special appropriation [provided for in the Collection Bill] will be included in the Administered revenue and Expenses table in the financial statements in the department's Annual Report. In addition, Portfolio Budget

Additional Estimates will disclose actual expenditure under the appropriation.1 3 14

3.20 In a submission to the Committee on this question, Dr Nick Seddon and Professor Stephen Bottomley of the Faculty of Law at the Australian National University noted that

..the Commonwealth is proposing to use this company [the MIFCo] to raise a loan in conjunction with using it as a tool to implement a particular policy, namely waterfront reform. The problem, as we see it, is that the. Commonwealth itself may not raise a loan without

legislative authority (Financial Management and Accountability Act 1997s 37). The evident purpose behind this section is to ensure that, if the commonwealth intends to raise money other than by taxation, that proposed course of action must be scrutinised and approved by Parliament. It seems that the intent of Parliament in passing this

13 Act No 153 of 1997.

14 Submission 18, Department of Workplace Relations and Small Business, pp. 5-6.

Page 12 Chapter 3

section was to ensure that policy initiatives involving the raising of a loan would be legislatively mandated.

and

The overall result is that it is at least arguable that the

Commonwealth has neatly avoided its obligations under legislation by the simple device of registering a company to do what the Commonwealth itself cannot do. Further, public money can then be put at risk because providing a guarantee does not have to be

authorised by legislation. We do not know whether the Commonwealth has done anything which could be the subject of successful legal challenge. What we can say is that it is at least

questionable in terms of probity and accountability for the Commonwealth, for all practical purposes, to do indirectly what it is not permitted to do directly.15

This view was rebutted by the Department in evidence, and in its written supplementary submission.16

The likely application and interpretation o f provisions o f the Stevedoring Industry Levy (Collection) Bill, especially the proposed application o f clause 17 o f the Bill

3.21 The provision in the Bills before the Committee which has caused the most direct queries is clause 17 of the Stevedoring industry Levy (Collection) Bill.

3.22 Clause 17 provides

(1) The Minister may authorise payments that are in connection with, or incidental to, the reform or restructuring of the stevedoring industry. .

(2) The Consolidated Revenue Fund is appropriated for the purposes of payments under subsection (1).

3.23 The explanatory memorandum sets out the scope of the section as follows

The Minister will be able to authorise payments directly or indirectly, in connection with the restructuring or reform of the stevedoring industry. The Consolidated Revenue Fund is to be appropriated for these payments.

It is intended, for instance, that the minister be able to make payments that are equivalent to amounts redundant stevedoring employees would normally expect or receive upon termination of their employment on the ground of redundancy. This may include

15 Submission 8, Dr Seddon and Professor Bottomley, pp. 1-2.

16 Department of Workplace and Small Business

Page 13

redundancy pay, payments in lieu of notice and payments to meet the costs of establishing, financing and managing administrative arrangements put in place by the Commonwealth to ensure redundant stevedoring employees received such payments. It is

expected that any administrative arrangements would apply to redundancies in the stevedoring industry for a limited period only.

The Minister is to have flexibility as to whom such amounts are paid. The Minister will be able to make payments direct to employees, to an employer or other entity that has paid monies direct to employees or to entities such as financial institutions that may have financed

such payments. The amounts paid to such entities may include the cost of finance.

Depending on the number of redundancies, and given the intended level of the levy, the levy may apply for several years to cover the cost to the Commonwealth of such payments. Because of the uncertainties surrounding the total cost of the arrangements, there is

no provision for the automatic termination of the levy. 17

3.24 In submissions to the Committee, the point was raised by several submissions that the stated intention of the clause may not be strictly observed by the Minister, and that funds could be appropriated and paid for purposes other than those specified in the clause.18

3.25 A specific point regarding the clause, and highlighted in the Selection of Bills Committee’s report was whether payments may be made under the clause which normally would have been payable as redundancy payments by employers.

3.26 In its submission to the Committee, the Department advised that, because the Government has for a considerable period of time, taken an active role in funding redundancy provisions in the maritime industry. Accordingly, the payment of redundancy payments to stevedoring employees should be made where redundancy

occurs as a result of industry reform and restructuring as a result of acceptance of the benchmark objectives. .

3.27 During discussions with the Committee, Senator O'Brien asked the Department whether and how it was envisaged the clause might be applied in relation to payments for costs that may arise under the terms of the clause but which were in a

category other than redundancies in the major stevedores. 19

3.28 In its reply to the Committee, the Department advised that

Under the Stevedoring Industry Levy (Collection) Bill 1998 the Minister will be able to authorise payments that are actually

17 See, explanatory memorandum, p. 9-10, clause 17.

18 Submission 14 (MUA); submission 12 (Sealand).

19 Evidence, 15 June 1998, p. 46.

Page 14 Chapter 3

connected with the reform or restructuring of the stevedoring industry. The minister could not authorise payments which had no connection to such reform or restructuring. Payment will be able to be made in relation to a particular action or event (such as the redundancy of an employee or introduction of a training initiatives) where that action is connected with, or incidental to, reform or restructuring of the stevedoring industry.

Whether or not the minister could authorise payment to an entity who had formerly been a stevedore will depend on the facts. It would be necessary for that payment relate to action taken by that entity, while a stevedore, that had contributed to reform or restructuring of the stevedoring industry consistent with the Seven Benchmark

Objectives. The simple business failure of a stevedore, or withdrawal from the industry, would of itself be unlikely to be sufficiently connected with reform or restructuring. However, it is possible that action of the entity, before leaving the industry, would have a sufficient connection with reform or restructuring consistent with the Seven Benchmark Objectives.20

3.29 In discussions with Mr Ferguson of the National Farmers' Federation, whether the NFF expects to seek access to funds available under the Bills for redundancies that may result from the closure of P & C Stevedores [the stevedoring company established by the NFF]. In reply Mr Ferguson told the Committee

We have thought hard about that, and I think, in principal it probably should apply to our workforce along with anything else because, after all, our workforce has contributed to the achievement of measurable improvement to productivity....

We have budgeted to make termination payments from within our own resources - though, I do not close off the possibility that we will be seeking to access, on behalf of our employees, these funds.21

3.30 In further discussions with the Committee, Mr Ferguson agreed that the only access that the P & C Stevedores would seek to the funds available under the Bills would be for redundancies, and not for other costs associated with P & C operations or activities.22

Possible imposition o f the levy on stevedoring companies who do not wish to access payments under any scheme related to the Bills

3.31 In its submission, the Department advised that the rationale for the imposition of the levy on all stevedores is due to several factors, including that the

*° Supplementary material provided to the Committee by the Deportment o f Workplace Relations and Small Business, 18 June 1998, p. 3.

21 Evidence, p. 34

22 Evidence, p. 40.

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Page 15

reforms proposed by the Bills are available to all stevedores, notwithstanding that some may not seek access to the funds at present. In addition, the reforms can be expected to flow through, by way of competitive pressures on prices, in due course.

3.32 The Department noted

There is nothing unusual about imposing a levy on a whole industry irrespective of whether the levy will benefit them all equally. Indeed, there are other recent examples of legislation imposing broad industry levies collected for a legislative purpose that do not seek to

ensure that each sector of the relevant industry or each individual levy payer obtains the same benefit.23

3.33 A principal example of such a levy, according to the Department's advice, is the Australian horticultural levy levied pursuant to the Horticultural Levy Act 1987 which is levied on all producers of fruit, nuts vegetables and cut flowers. As a result, all producers benefit from research and marketing initiatives funded form the levy.

Other Matters - Possible Application o f the Levy to cargo and vehicles Not Handled by Major Stevedores.

3.34 The Department noted that the levy may apply to trade which is essentially conducted by small regional stevedores whose trade is exclusively domestic. This application also may have affected transport of Australian Defence Forces vehicles.

3.35 The Department advised the Committee

...consideration is also being given to exempting all domestic cargo (containers or vehicles shipped directly from one port in Australia to another port in Australia from the levy. Regional stevedores whose trade is exclusively domestic would benefit from such an exemption.

In relation to ADF cargo, where an ADF ship is loaded or unloaded by ADF personnel, the Department has been advised by the Australian Government Solicitor that no levy would be payable because there would be no person responsible for the loading or

unloading of the cargo, (in the sense of responsibility under a contract, arrangement or understanding with the owner or charterer of the ship as required under section 7 of the SLC Bill.24

Other matters - Constitutional Position

3.36 During discussions advice was sought from the Department as to whether the Bills were designed to ensure that if the Commonwealth planned to raise money by way of levy, other than through taxation, that such a course of action should be scrutinised and approved by Parliament under the Financial Management and

23 Submission 18, Department o f Workplace Relations and Small Business, p. 8.

24 As above, pp. 7-8.

Page 16 Chapter 3

Accountability Act 1997. This particularly applied to the MIFCo. In response, the Department has provided the Committee with an opinion from the Acting Solicitor General of Australia, Mr Burmester, to the effect that:

The Bills are a taxation measure within section 51 (ii) to the extent of the Constitution to the extent they impose the levy. The Collection Bill then limits the principal purpose for which moneys may be appropriated by reference to matters falling under section 51 (i) and section 51(xx) of the Constitution. The appropriations contained in the Collection Bill for the payment out of money collected under the levy are thus, in my view, having regard to provisions governing the amount and the purposes for which the moneys may be paid, valid appropriations. This is particularly the case given that clause 18 limits payments to those that 'are in connection with, or incidental to, the reform or restructuring of the stevedoring industry'. 'Stevedoring industry is defined in clause 5 of the Bill in a way that limits it to matters that are clearly within Commonwealth constitutional power. Clause 19 which deals with the distribution of any surplus levy would clearly be read, as is the case with other legislation, so as only to authorise expenditure that was for purposes within constitutional power under section 81 of the Constitution.25

Other matters - Observations by Australian Productivity Commission

3.37 In discussions with other witnesses, before the Committee, Senator Murray had proposed that not only the major stevedores, Patrick and P & O Ports, would benefit from the scheme proposed by the Bills. Further, .the smaller stevedore companies in Australia (some five or six) would not benefit to the same extent as Patrick and P & O, because of the very small part of the stevedoring market that small stevedores have.

3.38 In discussions with the Committee, Mr Banks, the Chairman of the Productivity Commission told the Committee that the Commission had specifically examined work arrangements that apply in stevedoring generally, rather than looking at individual work places. Following the hearing the Industry Commission wrote to Mr Banks wrote to the Committee and advised that

.... In its report on work arrangements [the Commission] found that work arrangements at Sea-Land were on the whole similar to those at P & O and Patrick. There were, however, some variations between stevedores. Remuneration schemes provide one example.

The report noted ...

....management of each o f the stevedoring work places examined including Sea-Land have agreed to prescriptive work arrangements that constrain performance. Given to the extent that there are .

25 Supplementary Submission by the Department o f Workplace Relations and Small Business, p. 5.

Page 17

negotiations and improvements to work arrangements at Patrick connected with the redundancy fund by the levy and that these improvements flow through to Sea-Land when its agreement is renegotiated, Sea-Land will benefit from the levy. Whether this benefit would outweigh the direct cost to the levy the Sea-Land is

uncertain.

3.39 - In response to a second question from Senator Murray, the Commission advised

Smaller stevedores may also accrue similar flow on benefits thereby improving their performance. However, the Commission does not have the relevant information to make a judgement on whether these benefits would more than offset the levy costs. Neither the

Commission studies, with the facts on the container trade, include an analysis of small stevedores. The work arrangements study considered three Australian stevedores - P & O, Patrick and Sea- Land - which together account for nearly all of Australia's container

trade. Smaller stevedores which shift relatively few containers and whose main business is not container stevedoring (for example Western Stevedores) were not considered.

CHAPTER 4

CONCLUSIONS AND RECOM MENDATIONS

Introduction

4.1 During the course of the Committee's inquiry into these Bills, it became apparent that matters related to the redundancy payment scheme, and levy scheme, proposed by the Bills was subject to an imminent settlement between the principal stevedoring employee group, the Maritime Union of Australia and a major stevedore,

Patrick. The settlement, was alluded to during the Committee's hearings by both the National Secretary of the MUA, Mr Coombs, and the Managing Director of Patrick, Mr Corrigan. The Committee therefore concludes that matters related to restructuring and reform of the Australian waterfront is to be effected within the near future.

4.2 As a result, none of the stevedoring companies appearing before the Committee, nor the MUA, were opposed to the passage of the legislation. The exception to this rule is the factor held by Sea-Land Terminals, which opposes the legislation.

Committee Conclusions

4.3 The Committee has examined the provisions of the two Bills the Stevedoring Levy (Collection) Bill 1998 and the Stevedoring Levy (Imposition) Bill 1998, and concludes that, with amendments to the Bills the Stevedoring Levy (Collection) Bill proposed by the Minister in his media release of 12 June 1998, that the Bill not apply

to Australian domestic cargo, that the Bills should be considered by the Senate and passed without further amendment.

Clause 17 o f the Stevedoring Levy (Collection) Bill 1998

4.4 The Committee has considered advice from the Department of Workplace Relations and Small Business in relation to the possible interpretation of clause 617 of the Bill.

4.5 The Committee considers, and concludes, that the wording of the clause is sufficiently clear to ensure that moneys cannot be applied by the Minister to purposes other than restructuring or reform of the stevedoring industry, and in particular that moneys cannot properly be applied to purposes other than payment of redundancies

for stevedoring employees who receive redundancy, payments under the scheme proposed by the Bills.

4.6 The Committee has relied on advice from the Department, that the Minister may make payments under the following operations:

Page 20 Chapter 4

It would be necessary that payment relate to action taken by that entity, while stevedores that had contributed to reform or restructuring of the stevedoring industry be consistent with the Seven

Benchmark Objectives. The simple business failure of the stevedore or withdrawal from the industry, would of itself be unlikely to be sufficiently connected to perform or restructuring.

The Position o f the Maritime Industry Finance Company

4.7 During its inquiry, the Committee heard submissions that the MIFCo will not be adequately accountable for its activities.

4.8 Having considered evidence before it regarding the position of the MIFCo, the Committee concludes that no special accountability provisions need to be spelled out in the subject Bills before the Committee in relation to accountability of the MIFCo to the Parliament. .

4.9 The Committee notes that the provisions of the Commonwealth Authorities and Companies Act 1997 clearly apply to the MIFCo, and in particular that section 38 of the' Act makes provisions for the preparation and furnishing to the Minister of interim report in respect of individual financial years. This interim report may include a range of matters relating to operations, financial positions and auditor general s review of the company's activities.

4.10 In view of the importance of the MIFCo's role in bringing about restructure and reform on the Australian waterfront, the Committee recommends that the Minister should request that interim reports of the MIFCo for each six months of the financial year be prepared and provided both to the Minister for Finance,

and to the Parliament to ensure a proper level of accountability.

RECOMMENDATION REGARDING THE BILLS

4.11 The Committee recommends that the Stevedoring Levy (Collection) Bill 1998 and the Stevedoring (Imposition) Bill 1998 be passed by the Senate subject to amendments related to the application of the Stevedoring Industries (Collection) Bill 1998 to Bass Strait trade, as indicated in the Minister's press

release regarding this matter on 12 June 1998. 1

Senator Winston Crane Committee Chairman 23 June 1998

1 Supplementary submission, Department o f Workplace Relations and Small Business, p. 4.

DISSENTING REPORT Senator Kerry O'Brien Senator Michael Forshaw

Whilst agreeing to Chapters 1, 2 and 3 of the Committee’s report, Senators O’Brien and Forshaw do not agree with the conclusions and recommendations of the majority of the Committee set out in Chapter 4 of the report.

Senators O’Brien and Forshaw believe the Bills as currently drafted place an unreasonable, unfair and anticompetitive burden on small stevedoring companies, provide the Minister with power to make payments for a far greater range of purposes

than just the payment of redundancy and other entitlements of stevedoring workers leaving the employment of stevedoring companies (and for the administration of the levy) and that there is inadequate parliamentary scrutiny of the Maritime Industry Finance Company (MIFCo).

Levy not to be collected on domestic cargoes

The Committee has noted that the Minister in his press release of 12 June 1998 indicated the levy will not apply to Bass Strait trade. Senators O’Brien and Forshaw note that the Minister’s press release actually says “that the Commonwealth will exempt domestic cargo from the levy.”

Senators O’Brien and Forshaw note that in addition to Tasmania, there are a number of communities who are solely dependant on sea transport and therefore recommend that the Bills should be amended to ensure that the levy is not payable on cargo moved between any two places within Australia or its territories.

Payment o f the levy by small stevedoring companies

The majority report of the Committee notes none of the stevedoring companies that appeared before the Committee were opposed to the passage of the legislation. It is also noted that the exception to this rule is Sea-Land Terminals. Senators O’Brien and Forshaw note that in its submission, the Bunbury Port Authority, which does have

the capacity to provide stevedoring services and is actively involved in developing that part of its business, does effectively object to the Bills when it says “it is only appropriate that those stevedoring companies that wish to access payments under the scheme should be required to contribute.”

Senators O’Brien and Forshaw observe that it is clear from two press releases issued by the Minister on 8 April 1998 that Patrick and P&O, the only two stevedores to appear before the Committee, had agreed to the Government’s reform program and had undertaken to absorb the cost of the levy. It is clear that in April, P&O and Patrick were both intended to be beneficiaries of the levy and as such, no great significance should be attached to the fact that they support the legislation. The Bills provide a scheme for the assistance of the two major stevedoring operators, not the industry as a whole.

In its submission to Committee, Sea-Land Terminals, the next largest container terminal operator in Australia, and the most efficient in terms of crane rates', indicated that it was not consulted in the drafting of the legislation. No evidence has been presented to the Committee that any other stevedoring companies were consulted.

Sea-Land’s business in Adelaide is expanding and the company intends opening a new terminal in Brisbane in the near future. In its submission, Sea-Land indicates that it has no intention of making any of its staff redundant and as such believes that it is unfair that it is being asked to fund its competitors’ redundancy costs.

Senators O’Brien and Forshaw observe that whilst it may be arguable that the agreement of Patrick and P&O with the Government to absorb the levy in their pricing structures and the requirement of stevedoring companies not wishing to access funds available for redundancies to pay the levy may contravene the relevant competition legislation, it is clearly unfair and unreasonable to require Sea-Land or any other current or prospective stevedoring company to effectively pay for the restructuring of their competitors.

It is further observed that the imposition of a levy in the way proposed in the Bills may actively discourage new entrants into the industry which would be contrary to the Government’s stated objective of increasing competition on the Australian waterfront.

Therefore, in the interests of fairness and in order to encourage competition between stevedoring companies and new entrants into the industry, Senators O’Brien and Forshaw recommend that the Bills be amended to ensure that only those companies seeking to access funds under the Bills be required to pay the levy.

Payments made under Section 18 o f the Stevedoring Levy (Collection) Bill 1998

The majority of the Committee have concluded “that moneys cannot properly be applied to purposes other than payment of redundancies for stevedoring employees who receive redundancy payments under the scheme proposed by the Bill.” In part, the majority has relied on evidence from the Department.

Senators O’Brien and Forshaw observe that at no point in either Bill is the word “redundancy” mentioned nor do the “Seven Benchmark Objectives” have any status at law. Moreover, the language of section 18 of the Stevedoring Levy (Collection) Bill 1998 empowering the Minister to make payments “in connection with, or incidental to, the reform or restructuring of the stevedoring industry” is particularly broad and cannot be construed to have the narrow meaning suggested by the Department.

It is the view of Senators O’Brien and Forshaw that the Bills as drafted could allow payments to made for purposes other than those for which the Parliament intends. For instance, it could include payments for legal fees and to persons employed by P&C Stevedores.

Waterline, March 1998, Issue No. 14, Bureau ofTransport and Communications Economics, Table 1

Senators O’Brien and Forshaw recommend that the Bills be amended to explicitly set out that funds may only be accessed for the payment of redundancy payments and other entitlements of stevedoring workers taking packages from employers who pay the levy and for the direct administration of the scheme.

The Position o f the Maritime Industry Finance Company

During its inquiry, the Committee heard submissions that MIFCo will not be adequately accountable for its activities.

The Committee notes that the provisions of the Commonwealth Authorities and Companies Act 1997 clearly applies to MIFCo, and in particular that section 38 of the Act makes provisions for the preparation and furnishing to the Minister of interim reports in respect to individual financial years. This interim report may include a

range of matters relating to the operations, financial positions and the Auditor General’s review of the company's activities.

However, Senators O’Brien and Forshaw are of the view that section 38 does not sufficiently provide for accountability of the company to the Parliament. Section 38 is merely designed to ensure accountability of the company to the responsible Minister, and there has been a distinct absence of adequate accountability of Ministers to the Parliament in respect of waterfront matters since 1996.

In considering the powers and performance of the MIFCo in deciding upon the reasonable distribution of some $25 Om of public funds, this Commonwealth- controlled company needs to be, and to be seen to be, fully open, accountable and participating in a transparent process.

Instead of a recommendation to the Minister regarding the provision of reports, Senators O’Brien and Forshaw are of the view that the Parliament should express very clearly the full level of accountability required of the MIFCo. In particular, precise requirements for reporting to the Parliament, adequate and proper Parliamentary scrutiny of Ministerial powers and directions, and access to the MIFCo for

examination through the Senate Committee process are seen to be the minimum level acceptable.

In view of the importance of the MIFCo’s role in bringing about restructure and reform on the Australian waterfront, and in the distribution of some $250m to commercial entities, Senators O’Brien and Forshaw recommend that the Bills under consideration be amended to adequately express the Parliament’s

expectation regarding the accountability of the MIFCo and the scheme to the Parliament and to the Australian public.

I

RURAL AND REGIONAL AFFAIRS AND TRANSPORT LEGISLATION COMMITTEE

Consideration of

Stevedoring Levy (Collection) Bill 1998 And Stevedoring Levy (Imposition) Bill 1998

MINORITY REPORT

Senator Andrew M urray

AUSTRALIAN DEMOCRATS •

• June 1998

Rural and Regional Affairs and Transport Legislation Committee Stevedoring Levy (Collection) Bill 1998 and Stevedoring Levy (Imposition) Bill 1998 Minority R ep o rt: Senator Andrew M urray and Senator John Woodley : Australian Democrats : June 1998

The Australian Democrats are concerned that this legislation is reactive and was not drafted in as considered a manner as would be usual. It appears to have been a direct and urgent consequence of a set of problems that arose from government having an over close relationship with one member of the stevedoring industry. The timing of the announced bills and the manner of their announcement were all intimately linked with what has become known as ‘the Patrick’s dispute.’

The Majority Report does summarise concerns with the structure of the Bills and their constitutionality. However, on the evidence before us it is not possible to make a judgment on these issues, at this time.

Three principle issues have to be dealt with.

The first is that without a waterfront scheme such as this, it appears that dismissed workers and their families would be left without severance entitlements. That would be unacceptable. This Report is being written as we await the results of the ballot on the MU A/Patrick’s agreement. If that ballot is positive these monies will be needed.

The second issue concerns whether all stevedores should be liable to a levy which only some stevedores may benefit from. Sealand (Australia) Terminals Pty Limited have objected strongly to having the levy imposed on them. It is inequitable for stevedores who were not party to the unfortunate and unnecessary circumstances surrounding the Patrick’s dispute, to be made to pay a levy to fund the consequences of that dispute.

Of the remaining five or six ‘small business stevedores’ two are to be exempted from the levy by the Minister’s amendments to his Bill. The remainder will be subject to the levy. No witness could identify to the satisfaction of the committee whether these ‘small business stevedores’ would benefit from the redundancy fund, or would simply incur extra costs as a result of the levy. The Australian Democrats recommend that only those stevedores who access the fund, should be obliged to pay the levy

The third issue is the question of stevedores absorbing the levy. The Government is adamant that these charges will not result in an impost on customers or taxpayers. P & 0 and Patricks both state that they will absorb the levy. However there is no legal obligation for them to do so, and even if there were it would be almost impossible to police. The Australian Democrats are therefore fearful that the government’s assurances are hollow, and that it is possible that this levy will end up a cost to taxpayers.

Australian Democrats Australian Democrats

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LIST OF SUBM ISSIONS RECEIVED FROM O RG ANISATIONS AND INDIVIDUALS

Name

Mr Rad Leovic

Mr Tavis Longmuir

Mr D Figliomeni, General Manager, Bunbury Port Authority

Mr J Bartlett

Mr Lance Williams, Chief Executive, Holyman Coastal Express

Mr Peter Morgan, Director, Adaptas Pty Ltd

Mr L C Russell, Chief Executive Officer, Liner Shipping Services Ltd

Dr Nick Seddon & Professor Stephen Bottomley, Faculty of Law

Mr Rob Gulley

Mr Peter Edmonds, General Manager, Ports Corp South Australia

Mr R J Copley, Executive Officer, Federal Chamber of Automotive Industries

Captain F M Andrews, General Manager, Sea-Land (Australia) Terminals Pty Ltd

Mr Greg Combet, Assistant Secretary, The Australian Council of Trade Unions

(ACTU) and The Maritime Union of Australia (MU A)

Mr John Coombs, National Secretary, The Maritime Union of Australia (Supplentary to Submission No. 13)

Brambles Industries Limited

Queensland Nationals

Government of Tasmania and the Tasmanian Chamber of Commerce and Industry

Department of Workplace Relations and Small Business

Productivity Commission

Supplementary Submission to Submission Number 18 Department of Workplace Relations and Small Business 1

1 ·Î½>

A P P E N D I X 1

A P P E N D I X 2

LIST OF W ITNESSES APPEARING BEFORE THE COMMITTEE

M o n d a y , 1 5 J u n e 1 9 9 8 C o m m itte e R o o m 1R 1

P a r lia m e n t H o u s e C a n b e rra

St e v e d o r in g L ev y (co llectio n) B il l 1998 and S te v e d o r in g L evy (Im po sit io n) B ill 1998

The Maritime Union of Australia (MUA) John Coombs, National Secretary Graham Young, National Training and Development Officer

The Australian Council of Trade Unions (ACTU) Tony Morison, Industrial Officer

National Farmers' Federation James Ferguson, Deputy Executive Director and Industrial Director

Commonwealth Department of Workplace Relations and Small Business Dr Peter Shergold, Secretary Robin Stewart-Crompton, Deputy Secretary Bruce Cooper, Director, Waterfront and Maritime Team, Legal and Industry Group

P & O Stevedoring Andrew Burgess, Director Campbell Mason, General Counsel

Patrick Stevedoring Mr Chris Corrigan, Executive Chairman Mr Frank Parry, Barrister

Productivity Commission Gary Banks, Chairman

O

The Parliam ent of the Commonwealth of Australia

W HEAT M ARKETING LEGISLATION AM ENDM ENT BILL 1998

Report by the Senate Rural and Regional Affairs and Transport Legislation Committee

June 1998

© Commonwealth o f Australia 1998 ISSN 1038 -2755

This document was produced from camera-ready copy prepared by the Senate Rural and Regional Affairs and Transport Legislation Committee, and printed by the Senate Printing Unit, Department of the Senate, Parliament House, Canberra.

M EM BERS OF THE COMMITTEE

Members

Senator Winston Crane - LIB, Western Australia Chairman Senator Kerry O’Brien - ALP, Tasmania Deputy Chairman Senator Paul Calvert - LIB, Tasmania Senator Michael Forshaw - ALP, New South Wales Senator Julian McGauran - NP, Victoria

Participating Members

Senator Abetz Senator Brown Senator Colston Senator Eggleston

Senator Gibbs Senator Ian Macdonald Senator Margetts Senator Schacht

Senator West

Senator Bartlett Senator Brownhill Senator Conroy Senator Faulkner

Senator Harradine Senator Sandy Macdonald Senator Murphy Senator Sherry

Senator Boswell Senator Chapman Senator Cook Senator Ferris

Senator Lundy Senator Mackay Senator Neal Senator Tierney

Committee Secretariat

Mr Andrew Snedden (Secretary to the Committee) Mr John O'Keefe (Senior Research Officer) Ms Trish Carling (Estimates/Research Officer) Ms Judith Wuest (Executive Assistant)

Telephone (02) 6277 3510 Facsimile (02)6277 5811

Internet www.aph.gov.au/senate Email rrat.sen@aph.gov.au

TABLE OF CONTENTS

CHAPTER 1 1

THE COMMITTEE'S INQUIRY 1

Referral of the Bill 1

Conduct of the Inquiry 1

Consideration of the Bill and the Committee's Report 2

Acknowledgments 2

CHAPTER 2 3

PROVISIONS OF THE BILL 3

Outline of the Bill 4

Main Provisions of the Bill 4

Amendments to the Wheat Marketing Act 1989 5

Amendments to the Wheat Marketing Amendment Act 1997 6

CHAPTER 3 7

ISSUES CONSIDERED BY THE COMMITTEE 7

Introduction 7

Necessity to Proceed with the Bill Now 7

The Single Desk Export Monopoly 9

The Taxation Treatment Afforded Growers' Funds Held in the WIF and Converted to Shares in AWB Limited. 11

Matters Related to the Proposed Corporate Structure of AWB Limited 15

CHAPTER 4 17

CONCLUSIONS AND RECOMMENDATIONS 17

Introduction 17

Conclusion 17

Recommendations 18

1 . U

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DISSENTING REPORT Senator Kerry O'Brien, ALP; Senator Michael Forshaw, ALP

RESERVATION Senator John Woodley, Australian Democrats

APPENDICES Appendix 1 List of Submissions Received Appendix 2 List of Witnesses Appearing Before the Committee

L

C H A PT E R 1

THE COM M ITTEE'S INQUIRY

Referral of the Bill

1.1 On 24 June 1998, the Senate Selection of Bills Committee recommended to the Senate, and the Senate agreed, that the Wheat Marketing Legislation Amendment Bill 1998 be referred to the Rural and Regional Affairs and Transport Legislation Committee for consideration and report by 30 June 1998.

1.2 Specifically, the Bill was referred to the Committee because of two factors nominated by the Selection of Bills Committee:

The Grains council of Australia voted 4 - 1 (NSW, Qld, SA, WA for - Vic against) the stalling of the second tranche of legislation in the Senate until the GCA was satisfied with the Memorandums & Articles of Association and until matters were resolved with the

Government relating to rollover relief & "sunsetting provisions". Many in the industry still believe the Government has not properly answered the strong conflict of interest that exists between "A & B" class shareholders, Ownership & Control & Most importantly the

loss of the Single Desk marketing arrangement which is worth $14 / tonne to the industry. There is a serious threat of WA pulling out of any agreement and selling direct to the world against our other State growers.

The Minister John Anderson has written an extraordinary letter to the WAFF threatening that any further discussion or delay on this issue is unacceptable - referring to a possible loss of the Single Desk & that "there may be very serious consequences for producers if

there are any delays or amendments ..."'

Conduct of the Inquiry

1.3 The Committee did not advertise the inquiry on the Bill due to the very short time provided for conduct of the inquiry into the Bill. The Committee wrote directly to the Grains Council of Australia (GCA), the Australian Wheat Board (AWA), two State affiliate groups of the GCA, the Western Australian Farmers' Federation

(WAFF) and the New South Wales Farmers' Association (NSWFA), seeking short written submissions on the provisions in the Bill by 26 June 1998. A list of written submissions to the inquiry is in Appendix 1.

1 Senate Selection of Bills Committee, Report No. 8 of 1998, p. 3

Page 2 Chapter 1

1.4 The Committee held a public hearing on the Bill in Canberra on Monday, 29 June 1998. A list of those who presented evidence to the Committee is in Appendix 2.

Consideration of the Bill and the Committee's Report

1.5 The Committee met on 30 June 1998 to consider the Bill and finalise its report.

Acknowledgments

1.6 The Committee acknowledges the considerable effort that was made by those making written submissions and giving evidence to the Committee, in preparing their views and presenting them to the Committee in the short time allowed for the Committee's consideration of the Bill.

1.7 The Committee particularly also thanks the officers of the Grains Branch of the Department of Primary Industries and Energy, for their assistance in the inquiry.

1.8 The Committee also acknowledges the valuable assistance provided in the inquiry by the Parliament Library Research Service.

C H A PT E R 2

PROVISIONS OF THE BILL

2.1 On 14 May 1998 the Government introduced the Bill into the House of Representatives. The Bill continues the major restructuring of the marketing of the Australian wheat, which was first given effect to in the Wheat Marketing Act 1984, continued under legislation passed in 1989 and 1992, and particularly given effect to

in the first tranche of this legislation, the Wheat Marketing Amendment Bill 1997. Both this Bill and the 1997 Bill follow the announcement on 17 April 1997 by the Minister for Primary Industries and Energy, of the proposed new structure for wheat marketing in Australia.

2.2 The key element of the new arrangements is the intention that, by 1 July 1999, the only involvement that the Federal Government will have in wheat marketing will be in relation to maintenance of the export monopoly of export sales of wheat, which will be conferred on an independent grower-owned company.

2.3 The Wheat Marketing Amendment Act 1997 was, prior to its consideration by the Senate, considered by this Committee.

2.4 The major features of that Act include

• retention of the Australian Wheat Board (AWB) functions of controlling the export of wheat from Australia and the marketing overseas of Australian wheat

• repeal of the AWB statutory powers to: buy wheat in Australia or overseas; import wheat into Australia; and, to sell or dispose of wheat, or arrange to sell or dispose of wheat, in Australia

• terminate on 30 June 1999 the Wheat Industry Fund (WIF) component of the levy on wheat sales and amounts of that levy payable by the Commonwealth to the AWB

• establishment of three wholly owned subsidiaries of the AWB to which the AWB's wheat marketing and financing functions will be transferred

• 'nominated company A', the most important of the subsidiary companies, was created and given the power to subscribe for, acquire and hold shares in nominated companies B and C. Nominated company A can enter into arrangements with one of its wholly owned subsidiaries - other than

nominated company B - to perform its functions.

• directorships of nominated company A or one of its wholly owned subsidiaries require the approval of the Minister •

• the constitutions, or memorandum and articles, of any nominated company cannot be changed without approval of the Minister.

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Page 4 Chapter 2

Outline of the Bill

2.5 The major provisions of the Bill provide for the following developments in the restructuring of the wheat marketing industry

• establishment of the Wheat Export Authority (WEA) on 1 July 1999, to replace the AWB and to have the functions of controlling wheat export from Australia, and monitoring nominated company B's performance in relation to the export of wheat

• provide for B class shares in nominated company A to be issued to WIF equity holders only, and for such shares to be issued at the rate of one B class share for each unit in the WIF

• provide nominated company B with the power to export wheat without WEA authority until a sunset date of 1 July 2004

• exempt nominated company B from Part IV of the Trade Practices Act 1974

• require the AWB immediately before 1 July 1999 to divest itself of all assets, liabilities, employee's process rights, that could have been transferred

• on 1 July 1999 invest in nominated company A, AWB moneys held in the WIF, and investment of the WIF and any other asset that was acquired using WIF funds.

Main Provisions of the Bill

2.6 The Committee has considered the clauses of the Bill and draws attention to the following provisions

• Clause 5 requires the Minister to make a determination by 31 March 1999 amending the Constitutions (Memorandum and Articles) of the nominated companies - that is nominated companies A to C - this change to take effect after stakeholders become shareholders on the transfer date (that is

1 July 199)

Clause 6 provides for cancellation, immediately before the transfer date, of all shares in nominated company A - that is, shares that will be held by the AWB.

Clause 7 provides for B class shares in nominated company A to be issued to WIF equity holders. Shares are to be issued at the rate of one B class share for each unit in the WIF. •

• b

Provisions of the Bill Page 5

Amendments to the W h e a t M a r k e tin g A c t 1 9 8 9

2.7 Item 4 of the schedule to this Bill repeals parts 2, 3 and 3A of the Wheat Marketing Act 1989, and proposes substitution of a new part 2 - proposed sections 4 - 16 - of the Act. Parts 2 and 3 of the Wheat Marketing Act contain provisions dealing with the AWB and part 3A contains provisions with the companies which took over

the commercial activities of the AWB - that is, nominated companies A to C.

2.8 Proposed section 4 provides for the continued existence of the AWB after the commencement of the Bill, but to be known now as the Wheat Export Authority (WEA). The proposed functions and powers of the WEA are to

• control the export of wheat from Australia

• nominate a company B's performance in relation to the export of wheat.

2.9 Proposed section 6 provides that the membership of the WEA is to comprise a chairperson, one member nominated by the Grains Council of Australia, and one government member. Members will be appointed by the Minister for a specified term, up to a maximum of 3 years and will hold office on a part time basis

2.10 Proposed section 11 provides that money from the WEA, may only be spent in certain specified circumstances, including

• expenses and liabilities incurred by the WEA in the performance of its functions

• payment of remuneration and allowances

• reimbursing the GCA for expenses reasonably incurred by it in connection with meetings convened under section 17 of the Bill

2.11 Proposed section 12 requires Ministerial approval for borrowings by the WEA.

2.12 Proposed section 15 requires the chairperson of the WEA, where the annual report of the WEA has been tabled in the Parliament, to

• present the annual report to the meeting of the GCA within 6 months of the year to which the report relates

• report to the meeting on the operations- of the WEA during the year to which the report relates

• make themselves available to answer questions arising from the annual report. In addition to these requirements, there were requirements placed . on the WEA in relation to interim reports.

2.13 Proposed section 16 deals with WEA operational plans and requires operational plans to be prepared at the commencement of each financial year and provided to the Minister. The plan has to include details of strategies and policies, and the chairperson must keep the Minister informed of any changes to the plan and

matters that might significantly affect the WEA's ability to perform its functions. The

Page 6 Chapter 2

Minister can provide the chairperson with guidelines for determining when a matter might significantly affect the WEA's ability to perform its functions in accordance with the plan.

2.14 Section 57 of the W h ea t M a r k e tin g A c t 1 9 8 4 currently provides the AWB with the sole power to authorise wheat exports. The major amendments proposed by part 4 of the schedule to the Bill (item 6 to 21) include

• substitution of references to the AWB with that of the WEA

• provide nominated company B with the power to export wheat without WEA authority until 1 July 2004

• require the WEA prior to authorising a wheat export to consult nominated company B

• prohibit the WEA, prior to 1 July 2004 from authorising a bulk-export without the prior approval of nominated company B

• require that export applications be accompanied by the prescribed fee

• exempt nominated company B from Part IV of the T ra d e P r a c tic e s A c t 1 9 7 4

2.15 Proposed section 84 of the W h ea t M a rk e tin g A c t is substituted by item 16 of the schedule to the Bill which requires nominated company B to buy all wheat offered to it, which meets the standards required by nominated company B for inclusion in the pool operated by it. Proposed section 84 also requires that nominated company B pay

a reasonable price for such wheat, and that the price be calculated by reference to the net return to the pool in which the particular wheat is included. The requirement that nominated company B purchase all wheat, etc will not apply to any of them made after 1 July 1999. _

Amendments to the W h e a t M a r k e tin g A m e n d m e n t A c t 1 9 9 7

2.16 Item 22 of the schedule to this Bill repeals section 18 of the W h eat M a rk e tin g A m en d m en t A c t 1 9 9 7 , the explanatory memorandum explains that from 1 July 1999 nominated company A will no longer be considered a commonwealth authority for the purposes of Part IV of the P u b lic S e rv ic e A c t 1922.

2.17 Item 23 of the schedule provides for

• the AWB, immediately before 1 July 1999 to divest itself of all assets, liabilities, rights of employees, etc that could be transferred

• require the AWB to retain an amount of up to $5 million as determined by the Minister

• on 1 July 1999 invest in nominated company A, AWB money in the WIF, , investment of the WIF and any other asset that was acquired using WIF money. *

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C H A PT E R 3

ISSUES CONSIDERED BY THE COMMITTEE

Introduction

3.1 In the course of the Committee's inquiry four principal issues were raised with the Committee, these issues related to

• the necessity for Parliament to proceed with the Bill now

• the 'monopoly' export power for the Australian Wheat Board and its successor after 1 July 2004

• the effect of certain taxation arrangements and determinations by the Government and the Australian Taxation Office on the units held by wheatgrowers in the Wheat Industry Fund (WIF), and the treatment of these funds when converted into AWB shares

• matters related to the company structure for AWB Limited

Necessity to Proceed with the Bill Now

3.2 Submissions to the Committee from the Government, from the AWB, from the GCA, from the Queensland Graingrowers' Association and the New South Wales Farmers' Association urged the Committee to recommend to the Senate that the Bill

be proceeded with as quickly as possible, subject to the Committee highlighting to the Senate the concern that each organisation had regarding the Bill as it is presently drafted. ·

3.3 In opposition to this view, the Western Australian Farmers' Federation (WAFF), submitted to the Committee that the model for corporatisation of the Australian Wheat Board, and for subsequent listing as a public company, was unsatisfactory, and that for this reason, the legislation should not proceed until issues related to the corporate model for AWB Limited have been resolved. The WAFF

noted in its submission that

It is not acceptable that any person or organisation with a vested interest in constructing the GCM [grower corporate model corporation] and involved in investing the growers' money in WIF and looking at underwriting the crop should be involved in passing judgment on proposed changes which may cut them out of some of

the financial action - this is a classic case of conflict of interest.1 The WAFF oppose the introduction of the Bill at the present time, as it

1 Supplementary submission by WA Farmers' Federation.

Page 8 Chapter 3

leaves incomplete the memorandum and articles of the AWB Limited, and allows the Minister the power to finalise and approve the memorandum and articles of the company without further reference to the growers. The corporate structure which will be embodied in the AWB Limited, known as the Grower Corporate Model (GCM) continues to cause the WAFF considerable concern.

3.4 In its submission to the Committee, the GCA noted that the finalisation of the M & A's for AWB Limited was a concern, and highlighted two primary areas of concern in this regard:

• section 15 of the Bill requires the Minister to make a written

determination in relation to Constitutions of the Nominated C companies by 1 March 1999.

• the chairman and members of the AWB board have continued to pursue changes to the M & A's for AWB Limited directly with the Minister, without consulting other members of the working party.

3.5 The GCA further informed the Committee that the 'final drafts of the M & A's for nominated companies pre and post 1999 [were considered] at the Executive Committee meeting on 25 and 26 June 1998.2 In its written submission, and in its evidence at the Committee's hearing, the WAFF highlighted an alternative proposal for AWB Limited to the GCM. This model is described as 'the composite model' and, has general characteristics as follows:

• it can be accommodated to the existing GCM structure '

• it is based on cooperative principals currently existing in 'Pools Subsidiaries'

• surpluses earned by AWB Limited would be distributed through a combination of

- dividends on B class shares (publicly owned) - dividends on A class shares (grower owned) - payments for patronage (growers) = loyalty incentives).

3.6 The WAFF tabled for the Committee's consideration a detailed description and advice on the composite model, prepared by its advisers, Ausstock.

3.7 In putting the proposal for the composite structure before the Committee, the WAFF urged the Committee to recommend that the Bill not be proceeded with at the moment, to allow industry and Government to consider the benefits provided by its preferred model for AWB Limited.

3.8 In discussions with the Committee, the AWB, the GCA, and the NSW Farmers' Federation explained that there had been discussions between these groups

2 Submission 6, GCA, p. 12.

1 u

Issues Considered by the Committee Page 9

and the WAFF on how differences between the WAFF and other grower bodies and the AWB could be resolved to allow restructure of the marketing system to proceed/

3.9 The Committee has considered these arguments by the WAFF, but believes it will be to long term advantage of wheatgrowers and the industry, if the current legislation is proceeded with and AWB Limited is established in accordance with the model proposed by the Government and supported by the GCA and others.

Accordingly, the Committee will recommend that the Bill be dealt with by the Senate immediately.

The Single Desk Export Monopoly

3.10 Pate 5 of the Bill provides for amendment of section 57 of the Wheat Marketing Act 1989. The amendments are to that part of the Wheat Marketing Act dealing with control of wheat exports.

3.11 The amendments and give effect to the proposed cessation of the AWB's marketing function from 1 July 1999, and the fact that the WEA will hold this power from that date. The new section 57(i)(a) gives company B the right to export wheat without a consent from the WEA for five years from 1 July 1999 to 1 July 2004.

3.12 The explanatory memorandum to the Bill states .

Assuming that the MCP review in 1999-2000 recommends a continuation of the export monopoly, it is envisaged that before the end of the prescribed five year period in 2004 an export monopoly performance review would be held. Specifically the review would

assess the performance of the pooling subsidiary of the grower company (company B) in its use of its wheat export rights and advise Government on the future operation of the export monopoly, including whether that company should continue to have special

exports rights. It is envisaged that such a review would be linked with and possibly combined with an NCP review process. It would be up to the Government to decide who would receive any special export rights beyond 2004 and for parliament to amend the

legislation as necessary.

3.13 The explanatory memorandum continues

The WEA must consult company B about all requests for consent to export wheat. In the case of proposed exports in bulk, ie other than by means of bags or containers, a consent may not be given unless nominated company B has first approved the export. This

requirement supports the automatic right given by the Bill to

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Page 10 Chapter 3

company B to export wheat and reflects the importance of bulk exports in the overall marketing arrangement. Pending a decision by Parliament whether company B should continue to have special export rights after 1 July 2004 these provisions will cease from that date.

3.14 Submissions to the Committee stress a strong commitment to and demand continuation of a single desk for export wheat marketing. Several submissions, particularly from growers' groups indicate that the proposed amendments detailed

above do not meet industry requirements, and do not honour a commitment by the Minister for Primary Industries and Energy that the single desk marketing of export wheat would not be removed.4

3.15 The NSW Farmers Association noted

We accept that should the Government of the day decide to cancel a single desk after 2004 they can legislate to do so at any time, and the grower community of that day would have the opportunity to lobby for its position then. This is a far better position to go into the next

WTO round with. It would put us into a position where we can gauge the strength of the US, EU and Canadian, etc desire for trade liberalisation, before we make any formal decision on our single desk.5 6

3.16 The GCA expressed 'extreme concern' at the proposed amendment, and noted that the explanation contradicts a number of commitments given to the GCA by the Minister.

3.17 The GCA advised the Committee that it had legal advice that the assertion the provision does not constitute a 'sunset' on a single desk export monopoly dealer is misleading, and noted .

In the GCA's opinion it should be sufficient for Pool Co (company B) to have to meet a competition review every five years without also being obliged to meet a review for which there are no guidelines. The GCA acknowledges and understands that some individuals within the Government may have concerns regarding

entrenching Pool Co in the legislation with no power to remove the right may mean that the Government cannot remove the right except on just terms (that is paying compensation to Pool Co).

3.18 During the Committee's hearing, the Committee had extensive discussions with GCA and the AWB on the proposed provision.

4 Submission 3, Queensland Graingrowers Association, Submission 8, Western Australia Farmers' Federation, Submission 4, New South Wales Farmers Association.

5 Submission 4, p. 2. .

6 Letter to GCA from Messrs Mallesons Stephen Jacques, 24 June 1998

1 : >

Issues Considered by the Committee Page 11

3.19 The AWB, in its submission, noted that it strongly advocates the retention of the single export desk marketing arrangements and 'strongly support the GCA's request to remove the legislative sunset on the single desk1.

3.20 In discussions with the Committee, the representative of the Department of Primary Industries and Energy told the Committee that the proposed provision was not, in fact, a 'legislative sunset' on a single desk export monopoly, but an extension of power to be the sole exporter of wheat, to being the sole exporter of wheat with power

to commission or subcontract that power to other companies after 1 July 2004 **

3.21 The Committee is particularly concerned that submissions to it strongly stress the necessity to remove the 'sunset' clause of 1 July 2004 on the AWB's single desk export monopoly. The strong desire expressed in submissions was that the parliament should decide on whether the monopoly should be removed at that date, or

at all. Accordingly, the Committee will recommend that the 1 July 2004 sunset provisions as outlined above be deleted from the Bill, thereby requiring a further act of parliament to remove it.

The Taxation Treatment Afforded Growers' Funds Held in the WIF and Converted to Shares in AWB Limited

3.22 Funds held in the Wheat Industry Fund, which are converted to shares in AWB. Submissions to the Committee on this issue, also stressed strong concern at the treatment of moneys contributed to the WIF, which would subsequently be converted to shares in AWB Limited.7

3.23 The Queensland Graingrowers' Association's submission noted

With the restructure of the AWB the industry has agreed that the conversion of WIF equity to AWB shares is to be compulsory and this rules out growers redeeming their WIF equity. This decision for compulsory conversion is based on a consultants advice that if the • conversion is voluntary there is no control over the eventual size of

the capital base of the privatised AWB, which would put it at immediate risk in effectively managing the single desk marketing of wheat. The Treasurer has also said that once WAF equity becomes AWB shares it will lose its active asset entitlement and that on the

selling of the shares the grower would be required immediately to pay capital gains tax on the revenue above the cost base even if invested back into the farm business.

3.24 In its submission the GCA told the Committee that

The GCA firmly believes that there are still unresolved issues in relation to properly defining the cost base of the AWB shares and * 8

See Submission 4, New South Wales Farmers Federation; Submission 8, Western Australia Farmers Federation; Submission 3, Queensland Graingrowers Association

8 Submission 4, pp. 1-2.

Page 12 Chapter 3

growers access to roll over relief under the small business provisions of the Income Tax Assessment Act 1936.

3.25 The restructure involving the WIF will take place as follows:

• a new holding company (AWB Holding Company) will be established together with two new subsidiaries

• business of the AWB will be transferred to AWB Holding Company and it subsidiaries

• in 1999, the WIF will be used to subscribe for new shares in AWB Holding Company and the shares will be distributed to growers.

3.26 It is clear that the conversion of wheat growers WIF units into shares in the AWB Holdings Limited under the proposed restructure of the AWB will be compulsory. The GCA's submission to the Committee, characterised the proposed treatment of these funds under the taxation legislation as an anomaly.9

3.27 The submission to the Committee by the GCA emphasised two main issues. These are

• the extension of small business roll over relief to the sale of AWB shares and

• maintenance of the cost for AWB shares

3.28 In respect of the extension of small business roll over relief, the GCA noted that the Treasurer had acknowledged that the capital gains tax (CGT) small business roll over relief provision, announced in the budget in 1997, will be available to a tax payer where a WIF unit is disposed of, and the proceeds applied to the purchase of

another 'active asset'. In addition, AWB shares will not be 'active assets' or eligible roll over assets for the purpose of the provisions. Notwithstanding, consistent with the views of the Australian Taxation Office (ATO) for woolgrowers, units of the WIF

would be active assets.

3.29 The GCA told the Committee, that if AWB shares were treated as active assets for the purposes of the relevant taxation provisions, under CGT roll over relief, wheatgrowers - when disposing of an active asset - may be required to pay tax on any

ongoing disposal at a later stage. The effect of this provision is, in general terms, that roll over relief simply defers taxation on such a gain to a later year and that the important issue is that AWB shares should have the same status as WIF units. In relation to the cost base for AWB shares, the GCA submitted to the Committee that the Minister's announcement made on 26 November 1997, that the cost base of AWB shares to growers will be limited to grower levy contributions made between 1 July

1989 and 13 May 1997 (together with indexation of grower contributions to the WIF both before and after 13 May 1997) is incongruous. The GCA noted

1 J

9 Submission 6, GCA, p. 7.

Issues Considered by the Committee Page 13

... believes the cost base of the AWB shares to the growers should include, in addition to WAF contributions prior to 13 May 1997, an amount that reflects the good will of the business in the AWB and the earnings of the WAF.10 1 1 In addition, the GCA submitted to the

Committee that further reasons while the cost base of AWB shares should be increased included:

• that embedded good will should form part of the cost base, in accordance with established precedents which provide that the good will of the business has effectively been reflected in the cost base of shares allocated to shareholders in circumstances similar to the restructure of the AWB.

• embedded value should include matters such as present value of distributable profits, according to prevailing requirements in taxation law. Because the level of existing business reflects the good will of the trading business, the cost base of shares should also reflect this good will.

3.30 In relation to earnings on WIF contributions, the GCA noted that with earnings are only excluded from the cost base of the units because of mechanisms adopted in relation to the WIF, including contributions and treatment of earnings. If an alternative mechanism had been adopted under which earnings had been

distributed to growers and then - compulsory - reinvested by way of a WIF contribution, the cost base of WIF units to growers would reflect such earnings.

3.31 In its submission, the GCA outlined in some considerable detail how it had developed a plan for the AWB restructure, so as to obviate income tax anomalies that might arise to wheat growers as a result of compulsory conversion of WIF units into A WO shares. The GCA noted, that in advice to its president on 24 April 1998, the

treasurer had noted that

The cost base of the WTF units/AWB shares [will] include levy contributions by growers prior to 13 May 1997, indexed. Levy contributions made until 13 May 1997 [will] remain immediately income tax deductible and [will] receive the benefit of CGT

indexation until disposal of the asset. On disposal of the asset, cost base [will] be reduced by a levy contribution after 13 May 1997.11

3.32 The GCA submission noted further consultations it had with the Treasurer in relation to these matters, culminating in the Treasurer's advice that no alteration to the taxation arrangements confirmed would be altered. In its submission, the GCA told the Committee that appropriate legislative amendments to implement an appropriate

and equitable result for growers, under the restructure of the AWB should be enacted as follows:

• WIF units are to be considered to be held by growers on capital account (rather than on income account) for income tax purposes and any disposal

10 Submission 6, GGA, p. 8.

11 See submission 6, p. 10.

I

Page 14 Chapter 3

of WIF units by growers should be assessed under the CGT provisions rather than the ordinary income tax provisions

• the shares in AWB Limited received by growers upon conversion of the WIF units will be considered to have been received by them on capital account and are held by them on capital account and

• automatic CGT roll over relief will apply to growers upon conversion of the WIF units to shares in AWB Limited.12

3.33 In relation to this matter, the Committee was advised by the Treasury of the taxation treatment of restructuring the WIF into AWB Limited. The advice noted

• The WIF units are 'active' assets, so the CGT small business roll-over relief provisions which are available where a small business taxpayer disposes of active assets and acquires replacement active assets apply to the disposal of WIF units.

• Shares however are not 'active' assets, so the CGT small business roll-over provisions do not apply to the disposal of AWB shares.

- While the conversion of a WIF unit into an AWB share is an automatic process the new asset created - an AWB share - has significantly different characteristics from the WIF unit (eg it has voting rights, rights to dividends and is tradeable on the stock exchange). Only in very limited circumstances, namely in cases where there are at the most two

shareholders having at least 50 per cent each of the shares in a small business, is CGT small business roll-over relief available for shares.

3.34 The Committee has considered the proposals made by the GCA and other proposals with respect to taxation of WIF funds upon conversion, and have concluded that the prevailing approach to taxation of WIF units, and eventually converted WIF

units in the form of AWB shares should be treated, by where possible, as follows:

a) confirmation that AWB shares acquired by a wheatgrower as a result of compulsory conversion of WIF units are to be treated as 'active assets' of a wheatgrower for the purposes of division 17A and division 17B of Part III A of the Income Tax Assessment Act 1936, and any subsequent re­ enactment of those provisions as 'active assets' for the small business roll

over provisions provided by taxation legislation;

b) include in the cost base of AWB Limited shares, amounts

representing an element for good will of AWB and the earnings of the WIF; and,

c) confirm the taxation treatment of WIF units and AWB shares already agreed to by the Government.

1 t )

12 Submission 6, GCA, p. 2.

Issues Considered by the Committee Page 15

Matters Related to the Proposed Corporate Structure of AWB Limited

3.35 Submissions to the inquiry highlighted several issues in relation to the proposed structure of the corporation to replace the Australian Wheat Board, AWB Limited.

3.36 The GCA noted it had previously advised the Minister for Primary Industries and Energy that the GCA would not be in a position to support the Bill, until such time as the GCA and the industry generally have had the opportunity to formally approve the final draft memorandum and articles of association for the three

nominated companies established pursuant to the restructuring proposals.

3.37 The GCA highlighted two primary areas of concern regarding the Memorandum and Articles (M & A's) of the nominated companies is to be effected by the Minister no later than 1 March 1999, by written determination. Given the involvement, and resources allocated to, the GCA and grower contribution to

developing appropriate M & A's for the three nominated companies, the Government should agree that M & A’s officially adopted by the new companies, both before and after June 1999. The second matter relates to the apparent approach by the AWB Board with regard to the M & A's of the nominated company. The GCA highlighted that it was currently considering, in conjunction with the working group, and with the

assistance of legal and financial advisers, the final drafts of the M & A's for the nominated companies, for both pre and post July 1999. In a letter to the Committee dated 29 June 1998, the GCA advised that directorships of AWB Limited would reflect shareholding.

3.38 In discussions with the Committee, Mr Martin of the NSW Farmers' Association, pointed out that the share structure of AWB Limited, was a key issue in board membership, with A class shareholders having 7 directors on the AWB Board, initially, with 2 directors allocated to B class shareholders, with a third B class

director after 3 years and subsequently a fourth after 6 years, with the aim of incrementally increasing the value of B class shares.13

3.39 A second issue highlighted by the GCA relates to unintended consequences of recent amendments of the corporation's law by the Company Law Review Bill. In particular, that legislation's impact on the use of proxy voting, has important unintended consequences for the M & A's of AWB Limited.

3.40 The GCA advised the Committee that the legislation would make provisions for proxies in public companies, which are inconsistent with the current restriction agreed to in the M & A's for AWB Limited, unworkable and would be mandatorily overridden by the constituent documents of the company.

3.41 GCA also told the Committee that an amendment to the Company Law Review legislation to allow companies to make application to the Australian Securities Commission to seek an exemption from an irreplaceable rule or alternatively, support and amendment to the Bill to allow the AWB to seek and

13 Evidence, p. 2 (A Turn # 40)

Page 16 Chapter 3

exemption through the AFC from the proposed provisions of the Company Law Review Bill.

3.42 The Committee has considered these views, and believes that the following steps should be taken to resolve problems highlighted in relation to the proposed company structure of AWB Limited.

• the AWB should be exempted from the unintended consequences of the Company Law Review Act 1988 which impact on the use of proxy voting, as now proposed in the M & A's for AWB Limited

• that the value of the increase in B class shareholders from 2 to 3 and subsequently from 3 to 4 should only occur after a recommendation from the board of AWB Limited, and subsequent support of at least 50% of both A class and B class shareholder voters at an annual general meeting of AWB Limited. Any vote of this nature should be a vote by each class of voters independent of each other.

Accordingly, the Committee will recommend that appropriate amendments be made to the Bill and/or the Company Law Review legislation.

O i

CHAPTER 4

CONCLUSIONS AND RECOM MENDATIONS

Introduction

4.1 As in the case with the Wheat Marketing Amendment Bill 1997, the first tranche of the legislative package giving effect to the restructuring of wheat marketing, the submissions and evidence to the Committee in its examination of this Bill, addressed the principal issue of whether the Bill should proceed at this time.

Concerns expressed by one major growers’ group - the West Australian Fanners’ Federation - was that Parliament should' not proceed to consider the Bill until outstanding issues related to the proposed restructuring of the marketing scheme are,

where necessary addressed and resolved by industry and Government.

4.2 The Committee notes that the Bill will do two things: it will provide for the final conversion of Wheat Industry Fund units to shares owned by wheat growers in AWB Limited; and, it will enact the .grant of export monopoly to the AWB ‘company’, the Wheat Export Authority (WEA) which will be established by this Bill.

4.3 The examination of the Bill's provisions has also revealed further specific concerns about the proposed company structure and shareholding planned for AWB Limited. The Committee describes several of these concerns in Chapter 3 and draws them to the attention of the Senate, and the Minister for consideration during debate

on the Bill. These concerns, and others issues dealt with in Chapter 3, must be taken into account by the Government.

4.4 The Committee, and the industry, must also consider the new taxation regime to apply to the restructured AWB and growers before any further changes are legislated.

Conclusion

4.5 The Committee concludes that, on balance, it is desirable that the Senate proceed to consider the Bill urgently so as to ensure that legislative backing is provided to the AWB in order that it can operate in the marketplace with its proposed structure.

4.6 The Bill also provides a clear indication from the legislature that the program for structural change to wheat marketing is effectively proceeding. Evidence taken during the inquiry into the Bill still makes it imperative that the new AWB holding company has time to develop a track record and an identity in

capital markets, .

J

Page 18 Chapter 4

Recommendations

4.7 (l)The Committee recommends that the Wheat Marketing Legislation Amendment Bill 1998be urgently considered by the Senate, and that the Bill be agreed to and passed with the following amendments:

• That the proposed sunset clause of 1 July 2004 on the single desk export monopoly of wheat, should be deleted from the Bill, and that the Wheat Export Authority be required to report to Government by 31 December 2004 as to the future and/or placement of the export

monopoly from 2004.

• That the AWB should be exempted from any unintended

consequences of the Company Law Review legislation which affects or may impact upon the use by AWB of proxy voting.

• That the proposed phased increase in directors drawn from B-Class shareholders in AWB Limited from two to three, and subsequently from three to four should only occur after a recommendation from the Board of AWB Limited, and subsequent support of at least 50 per cent of A-Class shareholders and 50% of B-Class shareholders who vote at an Annual General Meeting of AWB Limited.

(2) The Committee recommends that the Treasurer reconsider the proposed treatment for tax purposes of shares in AWB Limited, and consider whether such shares may be treated as ‘active assets’ pursuant to the taxation laws in order that small business rollover provisions can apply to them.

Senator Winston Crane Chairman, Legislation Committee 30 June 1998

0

DISSENTING REPORT FROM SENATOR KERRY O ’BRIEN AND SENATO R M ICHAEL FORSHAW

The Opposition believes the Committee has been given insufficient time to properly consider the Bill which will determine the future structure of one of Australia’s major export industries with sales worth billions of dollars each year.

The Committee was advised that the Minister issued drafting instructions for the Bill in early April and the first draft of the legislation was available on 28 April.

However, the Bill was not introduced into the House of Representatives until 14 May and was not passed until 1 June. .

The Bill was not referred to this Committee·until 24 June.

Written submissions were available to members of the Committee only after hearings had commenced on the morning of 29 June.

The Government gave the Committee a reporting time to the Senate of approximately 5.00 p.m. on 30 June despite the fact that the proof Hansard of some 10 hours of evidence was not available until approximately 4.00 p.m. on that day.

Further, answers from officers of the Department of Primary Industries and Energy to questions asked by the committee were not provided to members until 6.00 p.m. on 30 June.

Answers from officers from the Australian Taxation office were not made available to Committee members until 4.35 p.m.

Senators O’Brien and Forshaw also noted that support for the Bill from the industry and the Australian Wheat Board was qualified by a number of concerns.

The Opposition considers the undue haste with which the Government is attempting for force this legislation through the Parliament does not provide adequate opportunity for these important concerns to be properly considered.

The Opposition believes the Bill could have been considered in a proper and timely manner if the Government had given it priority.

However, the failure of the Government to give the Bill priority and the manner in which the Government is now seeking to progress the Bill justifies the Senate rejecting the legislation’s exemption from the cut off rule.

The Opposition recommends accordingly.

1

Given the Opposition’s view that the Committee has given inadequate time to the proper consideration of this legislation it is difficult to give proper consideration to the Committee’s recommendations.

However, we would indicate that the Opposition holds the following views on the amendments proposed by the Committee.

• The Opposition supports the removal of the provisions which effectively ‘sunset’ the single desk export monopoly or other amendments which are proposed to this effect.

• The Opposition agrees that the AWB should be exempt from any unintended consequences of the Company Law Review legislation that effects, or may impact upon, the use by AWB of proxy voting.

• The Opposition is at this stage opposed to the conditions proposed on the increase in directors drawn from B class shareholders in AWB Ltd from 2 to 3 and subsequently 3 to 4.

• The Opposition does not support the Committee’s recommendation that the Treasurer reconsider the proposed treatment for tax purposes of shares in AWB Ltd. and will enunciate its reasons in the debate on the Bill.

Senator Kerry O’Brien Senator Michael Forshaw

ALP Senator for Tasmania ALP Senator for New South Wales

t .■>

RESERVATION

BY SENATO R JOHN W OODLEY

W H EAT M ARKETING LEGISLATION AM ENDM ENT BILL 1998

The Australian Democrats agree that the Report reflects the evidence given to the Committee at the hearings on 29 June 1998.

The Democrats believe also that the Conclusions and Recommendation are a fair summation of the Government's position as at the date of the Report and recognise that the Government has shifted its position to accommodate the concerns of a number of witnesses and industry organisations. However, at the time of writing the

Democrats have a number of outstanding issues which have yet to be resolved to our satisfaction.

Therefore, whilst agreeing to the Report being tabled we reserve the right to move a number of amendments which are yet to be drafted.

The Democrats understand the Government's desire to have the Bill dealt with urgently by the Senate as expressed in Conclusions 4.5 and 4.6. However, we are waiting for the drafting of amendments and further discussions with industry bodies which we believe are necessary to the passage of the Bill.

Senator John Woodley Australian Democrats Senator for Queensland

APPENDIX 1

LIST OF SUBM ISSIO NS RECEIVED FROM O RG ANISATIO NS AND INDIVIDUALS

Submission Number Name

1 Senator Andrew Murray, Australian Democrats 2 The Pastoralists and Graziers Association of Western Australia (Inc) 3 The Queensland Graingrowers Association 4 NSW Farmers' Association

5 Australian Wheat Board Limited

6 Grains Council of Australia

7 Australian Grain Industry Taskforce

8 The Western Australian Farmers Federation

LIST OF W ITNESSES APPEARING BEFO RE THE COM M ITTEE

Monday, 29 June 1998 Committee Room 2S3 Parliament House Canberra

Western Australian Farmers' Federation Mr Rob Ifflan, President, Grains Section Mr Peter Wahlsten, Vice-President, Grains Section Mr Kevin McMenemy, General President Mr William Bessemer, Consultant

Australian Wheat Board Mr Trevor Flugge, Chairman Mr Murray Rogers, Chief Executive Officer Mr Tim Goodacre, General Manager, Acquisitions

NSW Farmers' Association Mr Xavier Martin, Chairman, Grains Committee and Vice President, NSWFA

Grains Council of Australia Mr John Lush, President Mr Neil Fisher, Executive Director Mr Jock Kreitals, Deputy Director

Mr John Walter, GCA Consultant

Department of Primary Industries and Energy . Mr Ian Thompson, Assistant Secretary, Grains Branch

Department of the Treasury Mr Terry Lowndes, Assistant Secretary

Australian Taxation Office Mr Michael D'Ascenzo, Second Commissioner of Taxation

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

PARLIAMENTARY PAPER No. 400 of 1998 ORDERED TO BE PRINTED

ISSN 0727-4181