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Senate Legislative and General Purpose Standing Committees—Consolidated reports on the consideration of bills July-December 2013—Volume 2-Environment and Communications; Finance and Public Administration; Foreign Affairs, Defence and Trade; Legal and Constitutional Affairs; Rural and Regional Affairs and Transport


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Australian Senate

Senate Legislation Committees

Reports on the consideration of bills July-December 2013

Volume 2

Environment and Communications Committee Finance and Public Administration Committee

Foreign Affairs, Defence and Trade Committee

Legal and Constitutional Affairs Committee

Rural and Regional Affairs and Transport Committee

© Parliament of the Commonwealth of Australia 2013

ISSN 1834-4062

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

TABLE OF CONTENTS

Environment and Communications Committee • Clean Energy Legislation (Carbon Tax Repeal) Bill 2013*, Clean Energy Finance Corporation (Abolition) Bill 2013*, Clean Energy (Income Tax Rates and Other Amendments) Bill 2013*, Climate Change Authority

(Abolition) Bill 2013*, Customs Tariff Amendment (Carbon Tax Repeal) Bill 2013*, Excise Tariff Amendment (Carbon Tax Repeal) Bill 2013*, Ozone Protection and Synthetic Greenhouse Gas (Import Levy) Amendment (Carbon Tax Repeal) Bill 2013*, Ozone Protection and Synthetic Greenhouse Gas (Import Levy) (Transitional Provisions) Bill 2013*, Ozone Protection and Synthetic Greenhouse Gas (Manufacture Levy) Amendment (Carbon Tax Repeal) Bill 2013*, True-up Shortfall Levy (Excise) (Carbon Tax Repeal) Bill 2013*and True-up Shortfall Levy (General) (Carbon Tax Repeal) Bill 2013*, dated December 2013 ....................... 1

• Copyright Legislation Amendment (Fair Go For Fair Use) Bill 2013 ................................................................................................................... 77

Finance and Public Administration Committee • Commonwealth Electoral Amendment (Above the Line Voting) Bill 2013, dated December 2013 ........................................................................ 79

• Schedule 2 of the Social Services and Other Legislation Amendment Bill 2013*, dated December 2013 ................................................... 85

Foreign Affairs, Defence and Trade Committee • African Development Bank Bill 2013*, dated August 2013 ............................... 109

• Defence Legislation Amendment (Woomera Prohibited Area) Bill 2013, dated August 2013 ........................................................................... 185

Legal and Constitutional Affairs Committee • Telecommunications Amendment (Get a Warrant) Bill 2013, dated August 2013 ........................................................................................... 197

Rural and Regional Affairs and Transport Committee • Nil ..........................................................................................................................

*Provisions of bill referred to committee.

The Senate

Environment and Communications

Legislation Committee

Clean Energy Legislation (Carbon Tax Repeal) Bill 2013 [Provisions] and related bills

December 2013

1

© Commonwealth of Australia 2013

ISBN 978-1-74229-920-4

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

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

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

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

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Committee membership

Committee members Senator John Williams (NATS, NSW) (Chair) Senator Anne Urquhart (ALP, TAS) (Deputy Chair) Senator David Fawcett (LP, SA) Senator Louise Pratt (ALP, WA) Senator Anne Ruston (LP, SA) Senator Larissa Waters (AG, QLD)

Participating members Senator Christine Milne (AG, TAS) Senator Nick Xenophon (IND, SA)

Committee secretariat Ms Christine McDonald, Committee Secretary Ms Sophie Power, Principal Research Officer Ms Sandra Kennedy, Principal Research Officer Mr Chris Lawley, Senior Research Officer Ms Jacquie Hawkins, Research Officer Mrs Dianne Warhurst, Administration Officer

Committee address PO Box 6100 Parliament House Canberra ACT 2600 Tel: 02 6277 3526 Fax: 02 6277 5818 Email: ec.sen@aph.gov.au Internet: http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Environment_and_Com munications

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Table of Contents

Committee membership ................................................................................... iii

Abbreviations and Acronyms ..........................................................................vii

Chapter 1 - Introduction .................................................................................... 1

Conduct of the inquiry ............................................................................................ 2

Purpose of the bills ................................................................................................. 2

Chapter 2 - Background and overview of the bills .......................................... 5

Policy background .................................................................................................. 5

Carbon tax framework ............................................................................................ 7

Coalition commitment to repeal the carbon tax ................................................... 11

Implementation of the Coalition's policy ............................................................. 12

Overview of the bills ............................................................................................ 13

Chapter 3 - Key Issues ...................................................................................... 17

Repeal of the carbon tax ....................................................................................... 17

Cost impacts of the carbon tax ............................................................................. 18

Impacts of the carbon tax on Australia's competitiveness .................................... 20

Effectiveness of the carbon tax............................................................................. 22

Timing of the repeal ............................................................................................. 23

Role of Australian Competition and Consumer Commission .............................. 27

Abolition of the Climate Change Authority and Clean Energy Finance Corporation ........................................................................................................... 30

Committee comment ............................................................................................ 32

Dissenting Report from the Australian Labor Party .................................... 35

Australian Greens' Dissenting Report ............................................................ 57

Senator Xenophon Additional Comments ...................................................... 61

Appendix 1 - Submissions, tabled documents and answers to questions taken on notice ............................................................................. 65

Appendix 2 - Public hearings ........................................................................... 67

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Abbreviations and Acronyms ACCC Australian Competition and Consumer Commission

ACOSS Australian Council of Social Service

AFGC Australian Food and Grocery Council

ARA Australian Retailers Association

CCA Climate Change Authority

CEFC Clean Energy Finance Corporation

CFI Carbon Farming Initiative

CO2 Carbon dioxide

CPI Consumer Price Index

CPM Carbon Pricing Mechanism

Cth Commonwealth

ETS Emissions Trading Scheme

GE General Electric

GST Goods and Services Tax

LPG Liquefied petroleum gas

MPCC Multi-Party Climate Change Committee

NFF National Farmers' Federation

NGERS National Greenhouse and Energy Reporting Scheme

NGERS National Greenhouse and Energy Reporting System

OECD Organisation for Economic Co-operation and Development

RET Renewable Energy Target

RIAA Responsible Investment Association of Australia

SGG Synthetic greenhouse gases

TAA Tourism Accommodation Australia

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Chapter 1

Introduction 1.1 On 14 November 2013, on the recommendation of the Senate Selection of Bills Committee, the Senate referred the provisions of the following bills to the Senate Environment and Communications Legislation Committee (the committee) for inquiry:

• Clean Energy Legislation (Carbon Tax Repeal) Bill 2013;

• Ozone Protection and Synthetic Greenhouse Gas (Import Levy) Amendment (Carbon Tax Repeal) Bill 2013;

• Ozone Protection and Synthetic Greenhouse Gas (Manufacture Levy) Amendment (Carbon Tax Repeal) Bill 2013;

• True-up Shortfall Levy (General) (Carbon Tax Repeal) Bill 2013;

• True-up Shortfall Levy (Excise) (Carbon Tax Repeal) Bill 2013;

• Ozone Protection and Synthetic Greenhouse Gas (Import Levy) (Transitional

Provisions) Bill 2013;

• Climate Change Authority (Abolition) Bill 2013;

• Customs Tariff Amendment (Carbon Tax Repeal) Bill 2013;

• Excise Tariff Amendment (Carbon Tax Repeal) Bill 2013;

• Clean Energy (Income Tax Rates and Other Amendments) Bill 2013; and

• Clean Energy Finance Corporation (Abolition) Bill 2013. 1

1.2 The Selection of Bills Committee report was amended in the Senate to set a reporting date of 2 December 2013.2

1.3 The reasons for referral were for the committee to review the bills and report to the Senate on:

• costs to households and businesses from Labor's carbon tax;

• the impact of the carbon tax on business costs including mining,

manufacturing and small business; and

• their impact on Australia's efforts to tackle climate change and carbon

pollution.3

1 Journals of the Senate, No. 3, 14 November 2013, pp 126-127.

2 Journals of the Senate, No. 3, 14 November 2013, pp 126-127.

3 Senate Selection of Bills Committee, Report No. 9 of 2013, Appendices 3 and 4, 14 November 2013.

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Conduct of the inquiry 1.4 In accordance with usual practice, the committee advertised the inquiry on its website and wrote to relevant organisations inviting submissions by

22 November 2013.4

1.5 The committee received 37 submissions relating to the bills and these are listed at Appendix 1. The submissions may be accessed through the committee's website at:

http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Environment_and _Communications/Clean_Energy_Legislation.

1.6 The committee held a public hearing in Canberra on 26 November 2013. A list of witnesses who appeared at the hearing may be found at Appendix 2.

1.7 The committee would like to thank all the organisations and individuals that contributed to the inquiry and the witnesses who attended the public hearing at short notice.

Purpose of the bills 1.8 The purpose of the bills is to implement an election commitment made by the Coalition Government to repeal the previous Labor Government's legislation that implemented a carbon pricing mechanism (also referred to as a carbon tax).5

1.9 The carbon tax repeal package repeals the Clean Energy Act 2011 (Cth) and related Clean Energy Charges Acts (Cth) to abolish the carbon pricing mechanism.6 The package provides for the collection of all carbon tax liabilities for 2012-13 and 2013-14 and makes arrangements for the finalisation and cessation of industry assistance.7 The personal income tax cuts that were legislated to commence on 1 July 2015 will be repealed as will associated amendments to the low-income tax offset.8

1.10 The bills will amend provisions to remove the equivalent carbon price imposed through duties on aviation fuel and removes provisions imposing an

4 Senate Standing Committees on Environment and Communications website, 'Clean Energy Legislation (Carbon Tax Repeal) Bill 2013 [Provisions] and related bills', http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Environment_and_Commu nications/Clean_Energy_Legislation (accessed 18 November 2013).

5 The Hon Greg Hunt, MP, 'A Coalition government will repeal the carbon tax', Media release, 12 October 2011, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22media%2Fpre ssrel%2F1152090%22 (accessed 20 November 2013).

6 Clean Energy Legislation (Carbon Tax Repeal) Bill 2013, Schedule 1, items 1-6.

7 Clean Energy Legislation (Carbon Tax Repeal) Bill 2013, Schedule 1.

8 Clean Energy (Income Tax Rates and Other Amendments) Bill 2013, Schedule 1.

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equivalent carbon price through levies imposed on the import and manufacture of Synthetic Greenhouse Gases (SGGs).9

1.11 The Clean Energy Finance Corporation (CEFC), Climate Change Authority and the Land Sector Carbon and Biodiversity Board will be abolished by the repeal package.10

1.12 The proposed legislation will also introduce new powers for the Australian Competition and Consumer Commission (ACCC) to take action to ensure price reductions relating to the carbon tax repeal are passed on to consumers.11

9 Customs Tariff Amendment (Carbon Tax Repeal) Bill 2013 and Excise Tariff Amendment (Carbon Tax Repeal) Bill 2013.

10 Climate Change Authority (Abolition) Bill 2013 and Clean Energy Finance Corporation (Abolition) Bill 2013.

11 Clean Energy Legislation (Carbon Tax Repeal) Bill 2013, Schedule 2.

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Chapter 2

Background and overview of the bills 2.1 A key policy of the Liberal Party of Australia and the Nationals (together the Coalition) at the 2013 federal election was to abolish the carbon tax established by the previous Labor Government in 2011.1 If elected, the Coalition committed to taking immediate steps to remove the carbon tax, including introducing repeal legislation on the first day of the new Parliament.2

Policy background 2.2 As the 2010 federal election failed to produce a conclusive result, the Prime Minister, the Honourable Julia Gillard, negotiated to form a minority government with the Australian Greens and three Independent Members of Parliament. As part of the agreement to form government, the former Prime Minister agreed to create a Multi-Party Climate Change Committee (MPCC) to 'explore options for implementing a carbon price'.3 The MPCC was announced on 27 September 2010 and it released a 'Clean Energy Agreement' to reduce carbon pollution on 10 July 2011.4

2.3 The Clean Energy Agreement recommended that a broad-based carbon price be introduced into Australia commencing from 1 July 2012 with a fixed price before transitioning to a fully flexible cap-and-trade carbon pricing mechanism on 1 July 2015.5 It also recommended, amongst other things, the provision of industry

1 The Coalition, The Coalition's policy to scrap the carbon tax and reduce the cost of living, p. 1, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22library%2Fpa rtypol%2F2645370%22 (accessed 20 November 2013).

2 The Coalition, The Coalition's policy to scrap the carbon tax and reduce the cost of living, p. 5.

3 The Australian Greens and the Australian Labor Party, The Agreement, 1 September 2010, http://parlinfo.aph.gov.au/parlInfo/download/library/jrnart/218794/upload_binary/218794.pdf (accessed 21 November 2013); The Hon Julia Gillard, Prime Minister, Letter to Mr Oakeshott, 7 September 2010, http://roboakeshott.com/system/files/images/letter_of_agreement.pdf (accessed 21 November 2013); The Hon Julia Gillard, Prime Minister, Letter to Mr Windsor, 7 September 2010, http://www.tonywindsor.com.au/releases/AgreementToFormGovt.pdf (accessed 21 November 2013); The Hon Julia Gillard, Prime Minister and Mr Andrew Wilkie, The Agreement, 2 September 2010, http://www.abc.net.au/4corners/special_eds/20110620/wilkie/docs/agreement.pdf (accessed 21 November 2013).

4 Multi-Party Climate Change Committee (MPCC) website, 'Multi-Party Climate Change Committee', http://www.climatechange.gov.au/climate-change/multi-party-climate-change-committee (accessed 21 November 2013).

5 MPCC, Clean Energy Agreement, July 2011, p. 1, http://www.climatechange.gov.au/sites/climatechange/files/documents/04_2013/MPCCC_Clea n-energy_agreement-20110710-PDF.pdf (accessed 25 November 2013).

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and household assistance to reduce energy costs and the creation of new independent bodies to provide advice to government and to administer the carbon price.6

2.4 On 24 February 2011, the former Prime Minister announced that the Government intended to implement the MPCC's recommendations and create a carbon price mechanism to commence on 1 July 2012.7 On 10 July 2011 the Government released the policy document 'Securing a clean energy future: The Australian government's climate change plan' which detailed its plans for a carbon tax.8 The Clean Energy Futures plan aimed to cut 159 million tonnes a year of carbon pollution from the atmosphere by 2020.9

2.5 A legislative package of 18 bills to implement the Government's plan was introduced into the Parliament on 13 September 2011 and passed on

8 November 2011.10

2.6 The bills were referred to the Joint Select Committee on Australia's Clean Energy Future Legislation for inquiry. The majority report recommended that the Parliament should pass the legislation. It also highlighted that the Government should re-examine how the legislation treats LPG, the regulation of synthetic greenhouse gases and the provision of information and guidance to those affected.11 A dissenting report from Coalition members of the committee disagreed with the majority report and recommended that the bills not be passed.12

6 MPCC, Clean Energy Agreement, July 2011, http://www.climatechange.gov.au/sites/climatechange/files/documents/04_2013/MPCCC_Clea n-energy_agreement-20110710-PDF.pdf (accessed 21 November 2013).

7 The Hon Julia Gillard, Prime Minister, 'Climate change framework announced', Media release, 24 February 2011, http://parlinfo.aph.gov.au/parlInfo/download/media/pressrel/577310/upload_binary/577310.pdf ;fileType=application/pdf#search=%22clean%20energy%20future%20%202011%2002%2024 %22 (accessed 21 November 2013).

8 The Hon Julia Gillard, Prime Minister, 'Securing a clean energy future for Australia', Media release, 10 July 2011, http://parlinfo.aph.gov.au/parlInfo/download/media/pressrel/915157/upload_binary/915157.pdf ;fileType=application/pdf#search=%22clean%20energy%20%202011%2007%2010%20prime %20minister%22 (accessed 21 November 2013).

9 The Hon Julia Gillard, Prime Minister, 'Securing a clean energy future for Australia', Media release, 10 July 2011.

10 Votes and Proceedings of the House of Representatives, No. 65, 13 September 2011, pp 875- 878; Journals of the Senate, No. 65, 8 November 2011, p. 1793.

11 Joint Select Committee on Australia's Clean Energy Future Legislation, Inquiry into Australia's clean energy future, 7 October 2011, pp xvii-xix.

12 Joint Select Committee on Australia's Clean Energy Future Legislation, Inquiry into Australia's clean energy future, 7 October 2011, p. 259.

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2.7 The bills were also examined by the Senate Select Committee on the Scrutiny of New Taxes.13 In its Interim Report, the Coalition-controlled committee recommended that 'the carbon tax should be opposed and the legislation defeated in the Parliament'.14 The Interim Report stated that:

• there was no electoral mandate for the carbon tax;

• that the carbon tax was likely to undermine Australian businesses' ability to

compete in the global economy; and

• the effect of the policy on the cost of living, and on jobs, is likely to be higher

than the government's current estimates.15

2.8 The dissenting report from Labor senators on the committee recommended that the Parliament pass the bills.16

Carbon tax framework 2.9 The Labor Government's Clean Energy Futures legislation implemented a number of initiatives to cut carbon pollution by 2020. The initiatives included:

• introducing a carbon pricing mechanism;

• establishing industry assistance to help emissions-intensive trade-exposed industries;

• providing household assistance to help with forecast increased living costs; and

• establishing a number of bodies to advise government and administer the carbon pricing mechanism.17

13 Senate Select Committee on the Scrutiny of New Taxes, Final Report - The carbon tax: Economic pain for no environmental gain, 1 November 2011, http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Former_Committees/scruti nynewtaxes/completed_inquiries/2010-13/carbontax/report/index, (accessed 22 November 2013).

14 Senate Select Committee on the Scrutiny of New Taxes, Interim Report - The carbon tax: Secrecy and spin cannot hide carbon tax flaws, 7 October 2011, http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Former_Committees/scruti nynewtaxes/completed_inquiries/2010-13/carbontax/interim_report/index (accessed 1 November 2013).

15 Senate Select Committee on the Scrutiny of New Taxes, Interim Report - The carbon tax: Secrecy and spin cannot hide carbon tax flaws, 1 November 2013, p. xvii.

16 Senate Select Committee on the Scrutiny of New Taxes, Final Report - The carbon tax: Economic pain for no environmental gain, 7 October 2013, p. 87.

17 Australian Government, Clean Energy Futures, An overview of the Clean Energy Legislative Package, p. 2, http://pandora.nla.gov.au/pan/127961/20130809-0002/www.cleanenergyfuture.gov.au/wp-content/uploads/2012/05/CEF-overview_Apr2012.pdf (accessed 22 November 2013).

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Carbon tax

2.10 The Clean Energy Act 2011 (Cth) establishes a carbon pricing mechanism that places a price tag on carbon pollution.

2.11 Any facility that emits above an annual threshold of 25 000 tonnes of CO2 emissions will be liable to pay for each tonne of carbon pollution it emits above the threshold.18 At the end of each year, the entity will surrender the number of carbon units which represents its total emissions to the Clean Energy Regulator or pay a charge. Liable entities can either buy units or acquire them through industry assistance measures.19 Emitters may also purchase credits through the Carbon Farming Initiative (CFI), a framework within which farmers and landholders can undertake, monitor, and receive financial benefits for greenhouse gas emissions projects.20

2.12 The carbon pricing mechanism commenced on 1 July 2012 with a fixed price on carbon of $23 per tonne.21 The price is scheduled to increase by 2.5% per annum in real terms for three years.

2.13 On 1 July 2015, the carbon price is to transition to a fully flexible price under an emissions trading scheme with the price determined by the market. Linking to credible international carbon markets and emissions trading schemes will be allowed from the commencement of the flexible price period.22 At least half of a liable entity's compliance obligation must be met through the use of domestic units or credits.

2.14 The carbon tax is applicable to a number of industry sectors, including the stationary energy sector, industrial processing sector, non-legacy waste sector and fugitive emissions sector.23 Landfill facilities with direct emissions of 25 000 tonnes of CO2 emissions a year or more are also liable under the carbon price mechanism. 2.15 The carbon price does not apply to household transport fuels, light vehicle business transport and off-road fuel use by the agriculture, forestry and fishing industries.24

18 Clean Energy Act 2011 (Cth), subsection 22(4).

19 Australian Government, Clean Energy Futures, An overview of the Clean Energy Legislative Package, p. 2.

20 Anita Talberg and Kai Swoboda, Emissions trading schemes around the world, Background Note, 6 June 2013, Parliamentary Library, Canberra, p. 11, http://parlinfo.aph.gov.au/parlInfo/download/library/prspub/2501441/upload_binary/2501441.p df;fileType=application/pdf (accessed 22 November 2013).

21 Clean Energy Act 2011 (Cth), section 4.

22 Clean Energy Bill 2011, Revised Explanatory Memorandum, p. 12.

23 Australian Government, Clean Energy Futures, An overview of the Clean Energy Legislative Package, p. 2.

24 Australian Government, Clean Energy Futures, An overview of the Clean Energy Legislative Package, p. 2.

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2.16 The Liable Entities Public Information Database maintained by the Clean Energy Regulator indicates that there are 351 entities that may be liable to the carbon tax in the 2012-13 financial year.25

Industry assistance

2.17 The legislation created a range of targeted industry, and sector-specific, assistance programs as well as general assistance programs available to most businesses that are subject to the carbon pricing mechanism.26 These assistance measures take a number of forms, including tax incentives, free and discounted emissions permits, matched grants programs and information and advisory services.

Jobs and Competitiveness Program

2.18 The Jobs and Competitiveness Program provides $9.2 billion over the period 2012-13 to 2014-15 in the form of free carbon permit allocations for companies primarily in emissions-intensive trade-exposed industries, such as steel, aluminium, glass and chemicals manufacturing.27 Eligibility for the assistance is based on industry thresholds of trade exposure and emissions intensity.

2.19 The value of the permits available under the program will decline by 1.3% per year with the Productivity Commission to undertake a review of the program in 2014-15.

2.20 The Jobs and Competitiveness Program specifically excludes the extraction of coal as an emissions-intensive trade-exposed activity.

Energy Security Fund

2.21 The Energy Security Fund which provides $3 billion over the period to the 2014-15 financial year provides for the allocation of cash and/or free permits to pay for the closure of inefficient coal-fired generators.28 The Fund also issues free carbon permits to electricity generators if they meet the requirement of a power system reliability test and submit a Clean Energy Investment Plan to the government for publication.

25 Clean Energy Regulator website, 'LEPID for 2012-13 financial year', http://www.cleanenergyregulator.gov.au/Carbon-Pricing-Mechanism/Liable-Entities-Public-Information-Database/LEPID-for-2012-13-Financial-year/Pages/default.aspx (accessed 25 November 2013).

26 Kai Swoboda, Julie Tomaras and Alan Payne, Clean Energy Bill 2011, Bills Digest No. 68, 2011-12, Parliamentary Library, Canberra, p. 27, http://parlinfo.aph.gov.au/parlInfo/download/legislation/billsdgs/1185490/upload_binary/11854 90.pdf;fileType=application%2Fpdf (accessed 22 November 2013).

27 Kai Swoboda, Julie Tomaras and Alan Payne, Clean Energy Bill 2011, Bills Digest No. 68, 2011-12, Parliamentary Library, Canberra, p. 28.

28 Australian Government, Clean Energy Futures, An overview of the Clean Energy Legislative Package, p. 2.

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Other assistance programs

2.22 The Clean Technology Program provides $1.2 billion over seven years from 2011-12 to provide support to the manufacturing industry.29 The Program supports improvements in energy efficiency and research and development in low pollution technologies.

2.23 The Steel Transformation Plan provides $300 million over five years to encourage investment in the Australian steel manufacturing industry.30

2.24 The Coal Sector Jobs Package makes available $1.3 billion over six years for certain coal mines to implement carbon abatement technologies.31

Household assistance

2.25 To assist households with the introduction of the carbon tax, the Clean Energy Futures legislation package provides compensation through a mix of changes to income tax arrangements, one-off direct payments to eligible households and increases in pensions and allowances.

2.26 Changes to the income tax system from 1 July 2015 provide for an annual tax cut of $228 for taxpayers with taxable income of between $22 000 to $37 000. The amount of tax cut declines proportionally for people on incomes between $37 000 and $80 000.

2.27 The centre piece of the planned increases to welfare payments was the creation of a 'Clean Energy Supplement' which equates to a 1.7% increase in pensions, income support allowance and family payments.32

Governance

2.28 As part of the Clean Energy Futures legislation package two new Commonwealth agencies were created to advise on, and regulate, the operation of the carbon price mechanism.

2.29 The Climate Change Authority is established by the Climate Change Authority Act 2011 (Cth) and is responsible for:

• providing recommendations to the government on future pollution caps;

• making recommendations on the indicative national trajectories and long-term

emissions budgets;

29 Australian Government, Clean Energy Futures, An overview of the Clean Energy Legislative Package, p. 2.

30 Australian Government, Clean Energy Futures, An overview of the Clean Energy Legislative Package, p. 2.

31 Kai Swoboda, Julie Tomaras and Alan Payne, Clean Energy Bill 2011, Bills Digest No. 68, 2011-12, Parliamentary Library, Canberra, p. 28.

32 Kai Swoboda, Julie Tomaras and Alan Payne, Clean Energy Bill 2011, Bills Digest No. 68, 2011-12, Parliamentary Library, Canberra, p. 26.

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• providing independent advice to the government on the progress that is being

made to reduce Australia's emissions to meet national targets;

• conducting regular reviews on the carbon pricing mechanism; and

• conducting reviews of and making recommendations on the National

Greenhouse and Energy Reporting System (NGERS), the Renewable Energy Target (RET) and the CFI.33

2.30 The Clean Energy Regulator is established by the Clean Energy Regulator Act 2011 (Cth) and is responsible for administering the carbon pricing mechanism, the NGERS, the RET and the CFI.34 The Clean Energy Regulator is required to:

• provide education on the carbon pricing mechanism;

• assess emissions data to determine an entity's carbon liability;

• operate the emissions registry for emissions units;

• monitor, facilitate and enforce compliance with the carbon pricing

mechanism;

• allocate permits;

• determine whether an entity is eligible for assistance in the form of permits to

be allocated administratively; and

• accredit auditors for the CFI and the NGERS.

Clean Energy Finance Corporation

2.31 The Clean Energy Finance Corporation Act 2012 (Cth), part of the Clean Energy Futures legislation package, established the Clean Energy Finance Corporation. The Corporation has the power to invest in financial assets for the

development of Australian-based renewable energy technologies, low-emission technologies and energy efficiency projects. The Corporation has the power to enter into investment agreements itself, and make investments through subsidiaries.

2.32 The Clean Energy Finance Corporation operates with a $10 billion fund, with $2 billion provided per annum for five years. The first instalment was paid on 1 July 2013.

Coalition commitment to repeal the carbon tax 2.33 A key policy of the Coalition during the 2013 Federal election was to repeal the carbon tax if elected.35 The Coalition's 'Policy to scrap the carbon tax and reduce the cost of living' stated:

The Coalition will abolish the carbon tax.

33 Climate Change Authority Act 2011 (Cth), section 11.

34 Clean Energy Regulator Act 2011 (Cth), section 12.

35 The Coalition, The Coalition's policy to scrap the carbon tax and reduce the cost of living, August 2013, p. 2.

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The carbon tax indisputably adds to the cost of living, it makes households and families pay more for electricity and gas, it costs business more to operate, and it makes everything in our economy more expensive.36

2.34 According to the Coalition's costings, average families would be more than $550 better off in 2014 without the carbon tax.37 Over the next six years the policy notes that average families would be $3000 better off without the carbon tax.38

2.35 The Coalition promised that if elected it would take immediate steps to implement its plan to abolish the carbon tax including:

• on day one, instructing the Department of the Prime Minister and Cabinet to

draft legislation that repeals the carbon tax;

• on day one, notifying the Clean Energy Finance Corporation to suspend its

operations and instructing the Treasury to prepare legislation to permanently shut-down the Corporation;

• introducing legislation to repeal the carbon tax on the very first day of a new

Parliament; and

• introducing legislation to shut-down the Clean Energy Finance Corporation

within the first sitting fortnight of the new Parliament.39

2.36 The policy indicated that once the carbon tax has been repealed, the Coalition would implement its Direct Action Plan on climate change and carbon emissions. The Direct Action policy aims to reduce CO2 emissions by 5% by 2020 based on 1990 levels and deliver significant environmental outcomes.40 The centrepiece of the Direct Action Plan is the establishment of an Emissions Reduction Fund to directly support CO2 emissions reduction activities by business and industry. Businesses that reduce emissions below their baseline emissions will be able to sell their CO2 abatement to the Government, thus providing a financial incentive for firms to take action to reduce emissions.

Implementation of the Coalition's policy 2.37 Following the Coalition's election victory on 7 September 2013, the Prime Minister, the Honourable Tony Abbott, set about implementing the new Government's

36 The Coalition, The Coalition's policy to scrap the carbon tax and reduce the cost of living, August 2013, p. 2.

37 The Coalition, The Coalition's policy to scrap the carbon tax and reduce the cost of living, August 2013, p. 2.

38 The Coalition, The Coalition's policy to scrap the carbon tax and reduce the cost of living, August 2013, p. 2.

39 The Coalition, The Coalition's policy to scrap the carbon tax and reduce the cost of living, August 2013, pp 4-5.

40 The Coalition, Direct action plan, p. 1, http://parlinfo.aph.gov.au/parlInfo/download/library/partypol/LIOX6/upload_binary/LIOX6.pdf ;fileType=application/pdf#search=%22direct%20action%20plan%22 (accessed 20 November 2013).

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commitment. On 8 September 2013 the Prime Minster held a meeting with the Secretary of the Department of the Prime Minister and Cabinet and discussed the Government's reform agenda to repeal the carbon tax.41

2.38 On 15 October 2013 the Government released exposure drafts of bills to repeal the carbon tax.42 The Government also released a consultation paper explaining the content of the bills and sought feedback on any technical issues with the draft carbon tax repeal bills and transitional issues for liable businesses and other entities.43

2.39 The Prime Minister introduced the bills into the House of Representatives on 13 November 2013. In his second reading speech on the bills he stated:

The first impact of this bill will be on households, whose overall costs will fall $550 a year on average. Thanks to this bill, household electricity bills will be $200 lower next financial year without the carbon tax.

Household gas bills will be $70 lower next financial year without the carbon tax.

Prices for groceries, for household items and for services will also fall, because the price of power is embedded in every price in our economy.

This is our bill to reduce the bills of the people of Australia.44

2.40 The bills passed the House of Representatives on 21 November 2013 without amendment.45

Overview of the bills 2.41 The Carbon Tax Repeal Bills are a legislative package of eight bills that repeal the legislation that establishes the carbon pricing mechanism. These bills are the:

• Clean Energy Legislation (Carbon Tax Repeal) Bill 2013;

• True-up Shortfall Levy (General) (Carbon Tax Repeal) Bill 2013;

• True-up Shortfall Levy (Excise) (Carbon Tax Repeal) Bill 2013;

41 The Hon Tony Abbott, Leader of the Opposition, 'Remarks at briefing from the Secretary of the Department of Prime Minister and Cabinet', Transcript, 8 September 2013, Sydney, http://parlinfo.aph.gov.au/parlInfo/download/media/pressrel/2715656/upload_binary/2715656.p df;fileType=application/pdf#search=%22abbott%20%2009%20abbott,%20tony,%20mp%22 (accessed 25 November 2013).

42 Department of Environment website, 'Repealing the carbon tax—public comment', http://www.environment.gov.au/carbon-tax-repeal/consultation.html (accessed 25 November 2013).

43 Department of Environment website, 'Repealing the carbon tax—public comment', http://www.environment.gov.au/carbon-tax-repeal/consultation.html (accessed 25 November 2013).

44 The Hon Tony Abbott, Prime Minister, House of Representatives Hansard, 13 November 2013, p. 13.

45 Votes and Proceedings of the House of Representatives, No. 7, 21 November 2013, p. 138.

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• Customs Tariff Amendment (Carbon Tax Repeal) Bill 2013;

• Excise Tariff Amendment (Carbon Tax Repeal) Bill 2013;

• Excise Tariff Amendment (Carbon Tax Repeal) Bill 2013;

• Ozone Protection and Synthetic Greenhouse Gas (Import Levy) Amendment

(Carbon Tax Repeal) Bill 2013; and

• Ozone Protection and Synthetic Greenhouse Gas (Manufacture Levy)

Amendment (Carbon Tax Repeal) Bill 2013.46

2.42 The bills repeal, with effect from 1 July 2014, all of the provisions in the various Acts that impose carbon tax liabilities and make consequential and transitional amendments.47

2.43 The abolition of other carbon tax related initiatives are to be done through the following bills:

• Climate Change Authority (Abolition) Bill 2013;

• Clean Energy Finance Corporation (Abolition) Bill 2013; and

• Clean Energy (Income Tax Rates and Other Amendments) Bill 2013.

2.44 The Explanatory Memorandum for the repeal bills indicates that the total savings from removal of the carbon tax and carbon related programs is approximately $7.5 billion.48

Clean Energy Legislation (Carbon Tax Repeal) Bill 2013

2.45 The Clean Energy Legislation (Carbon Tax Repeal) Bill 2013 is the main repeal bill of the broader carbon tax repeal package. The bill repeals the Climate Energy Act 2011 (Cth) that establishes the carbon pricing mechanism (carbon tax), effective from 1 July 2014. The repeal means that no new carbon tax liabilities will arise for 2014-15 or subsequent years.

2.46 To ensure that liabilities incurred by entities in financial years 2012-13 and 2013-14 are met and enforced, the bill preserves some provisions of the Clean Energy Act. Once the final surrender for the financial year 2013-14 has taken place (which is to occur on 2 February 2013), there will be no further need for entities to hold carbon units.

2.47 The bill also makes arrangements for the finalisation and cessation of industry assistance through the Jobs and Competitiveness Program, the Energy Security Fund and the Steel Transformation Plan.

46 The Explanatory Memorandum for these bills is referred to as the Carbon Tax Repeal Bills Explanatory Memorandum.

47 Carbon Tax Repeal Bills, Explanatory Memorandum, p. 14.

48 Carbon Tax Repeal Bills, Explanatory Memorandum, p. 11.

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Increased powers for the Australian Competition and Consumer Commission

2.48 The removal of the carbon tax is expected to lower input costs for some businesses.49 In some markets this will flow on in the form of lower consumer prices. In selected markets where competition is limited, businesses may choose not to pass through savings from the carbon tax repeal.50

2.49 The bill prohibits price exploitation with respect to certain key goods (such as electricity and gas) and false or misleading representations about the effects of the carbon tax repeal on prices.51

2.50 The amendments also provide the ACCC with monitoring powers to assess the general effect of the carbon tax repeal on certain prices. The Explanatory Memorandum notes that 'these powers are similar to those made when the GST was first introduced'.52

True-up Shortfall Levy (General) (Carbon Tax Repeal) Bill 2013 and True-up Shortfall Levy (Excise) (Carbon Tax Repeal) Bill 2013

2.51 The main carbon tax repeal bill provides for a process by which allocations of free 2013-14 carbon units are subject to a final 'true-up'. According to the Explanatory Memorandum 'this is designed to correct under- and over-allocations of 2013-14 free carbon units, by allowing for issue of extra free carbon units or imposition of a levy if carbon units are not relinquished'.53

2.52 The bills are technical in nature and provide for the recovery of the value of over-allocated free carbon units through a constitutionally compliant levy.54

Customs Tariff Amendment (Carbon Tax Repeal) Bill 2013 and Excise Tariff Amendment (Carbon Tax Repeal) Bill 2013

2.53 Accompanying the introduction of the carbon tax, increases were made to the rates of excise and excise equivalent customs duty on aviation fuel. This had the effect of implementing an equivalent carbon price on aviation fuel. The equivalent carbon price was represented by increases in the rates of duty equal to a 'carbon component rate'.55

2.54 The bills remove the 'carbon component rate' from the rates of excise and excise equivalent customs duty imposed on aviation fuels. The rates of duty are reduced to the pre-carbon tax rate.56

49 Carbon Tax Repeal Bills, Explanatory Memorandum, p. 51.

50 Carbon Tax Repeal Bills, Explanatory Memorandum, p. 51.

51 Clean Energy Legislation (Carbon Tax Repeal) Bill 2013, Schedule 2, item 3.

52 Carbon Tax Repeal Bills, Explanatory Memorandum, p. 51.

53 Carbon Tax Repeal Bills, Explanatory Memorandum, p. 29.

54 Carbon Tax Repeal Bills, Explanatory Memorandum, p. 8.

55 Carbon Tax Repeal Bills, Explanatory Memorandum, pp 68-69.

56 Carbon Tax Repeal Bills, Explanatory Memorandum, p. 69.

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Ozone Protection and Synthetic Greenhouse Gas (Import Levy) Amendment (Carbon Tax Repeal) Bill 2013 and Ozone Protection and Synthetic Greenhouse Gas (Manufacture Levy) Amendment (Carbon Tax Repeal) Bill 2013

2.55 The Labor Government's clean energy legislation introduced an equivalent carbon price which applies to the import or manufacture of bulk synthetic greenhouse gases (SGGs) and import of all products containing these gases.57 The equivalent carbon price for SGGs is calculated using the value of the carbon tax and the global warming potential for each gas relative to carbon dioxide.58

2.56 The bills remove the applicable charge rate on SGGs from 1 July 2014. Importers and manufacturer of SGGs and products containing these gases will not have to pay the equivalent carbon price from 1 July 2014.

Climate Change Authority (Abolition) Bill 2013

2.57 The Climate Change Authority has responsibility for advising the Government on key aspects of the carbon pricing mechanism, such as the setting of emissions reduction targets and caps. The Authority also conducts periodic reviews of climate change measures.

2.58 The bill abolishes the Climate Change Authority and the Land Sector Carbon and Biodiversity Board. Relevant functions of the Climate Change Authority will be transferred to the Department of the Environment.59

Clean Energy Finance Corporation (Abolition) Bill 2013

2.59 The purpose of the Clean Energy Finance Corporation functions is to invest in clean energy technology. The bill abolishes the Clean Energy Finance Corporation and makes transitional provisions which transfer the Corporation's assets and liabilities to the Commonwealth.60

Clean Energy (Income Tax Rates and Other Amendments) Bill 2013

2.60 As part of the previous Labor Government's clean energy futures legislation, personal income tax cuts were legislated to commence on 1 July 2015. The income tax cuts were intended to provide assistance for an expected higher floating carbon price in the financial year 2015-16.

2.61 The bill repeals the personal income tax cuts that were legislated and associated amendments to the low-income tax offset.61

57 Carbon Tax Repeal Bills, Explanatory Memorandum, p. 71.

58 Carbon Tax Repeal Bills, Explanatory Memorandum, p. 71.

59 Carbon Tax Repeal Bills, Explanatory Memorandum, p. 3.

60 Carbon Tax Repeal Bills, Explanatory Memorandum, p. 8.

61 Carbon Tax Repeal Bills, Explanatory Memorandum, p. 8.

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Chapter 3 Key Issues

3.1 This chapter discusses key issues raised in submissions and evidence, including:

• support for the repeal of the carbon tax;

• cost impacts of the carbon tax and impacts of the carbon tax on Australia's competitiveness;

• effectiveness of the carbon tax;

• timing of the carbon tax repeal;

• the proposed role and powers of the Australian Competition and Consumer

Commission; and

• the abolition of the Climate Change Authority and the Clean Energy Finance

Corporation.

Repeal of the carbon tax 3.2 Many submitters and witnesses argued that the carbon tax imposes high costs for little or no environmental benefit.1

3.3 For example, the Minerals Council of Australia argued that the Clean Energy Act is a 'poorly designed response to the policy challenge' and that the carbon tax 'operates as a blunt redistribution mechanism'.2 It argued that the carbon tax framework:

…imposed high costs for little environmental benefit, undermined competitiveness and did little to boost substantial investment in a broad range of low emissions technologies and adaptation measures.3

3.4 The Business Council of Australia similarly urged that the carbon tax be repealed due to the high costs on business.4 The Business Council indicated that it

1 Mr Peter Lang, Submission 2; Tourism Accommodation Australia (TAA), Submission 3; Origin Energy, Submission 6; Australian Retailers Association, Submission 8; Energy Supply Association of Australia, Energy Retailers Association of Australia, Energy Networks Association, Australian Pipeline Industry Association (Energy Industry Groups), Submission 17; Australian Forest Products Association (AFPA), Submission 18; National Farmers' Federation (NFF), Submission 19; Minerals Council of Australia, Submission 20; Australian Aluminium Council, Submission 23; Cement Industry Federation and National Lime Association of Australia, Submission 25; Australian Industry Group, Submission 26; Business Council of Australia (BCA), Submission 27; Australian Environment Foundation, Submission 31.

2 Minerals Council of Australia, Submission 20, p. 3.

3 Minerals Council of Australia, Submission 20, p. 3; see also Mr Peter Lang, Submission 2, pp 5-6; Australian Environment Foundation, Submission 31, p. 4.

4 Business Council of Australia, Submission 27, p. 3.

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'supports the wind-up of the carbon pricing mechanism (CPM), given it places excessive costs on business and households because the carbon charge under the legislation is now one of the highest in the world'.5

3.5 The Australian Food and Grocery Council (AFGC) requested that the Parliament recognise the desire of businesses and electors to repeal the carbon tax.6 The AFGC urged the Senate to:

…pass the carbon tax repeal bill without delay. Businesses have been through many years of debate. We have had an election fought on this issue. I think generally businesses now want the parliament to get on with it and repeal the carbon tax and reduce energy costs in the interests of improving competitiveness, encouraging investment and driving job creation and growth.7

3.6 The committee also received evidence arguing against the repeal of the Clean Energy legislation. Research bodies and environmental groups indicated that the repeal of the carbon pricing mechanism will place Australia behind worlds' best practice for addressing climate change and create policy uncertainty for businesses and investors.8 For example, the Investor Group on Climate Change requested that, 'in the absence of an alternative policy proposal that is likely to be at least as effective and efficient as the current carbon pricing framework', the repeal bills not proceed.9

Cost impacts of the carbon tax 3.7 Submissions supporting the bills pointed to the costs of the carbon tax on business and the community. For example, the Australian Industry Group cited a survey it conducted in 2012 which 'found that businesses in the manufacturing, construction and services sectors estimated an average increase of around 14.5% in their energy costs as a result of the carbon tax'.10

3.8 The Minerals Council of Australia described the carbon tax as a 'deadweight' on the Australian economy, pointing out that in '2013-14, it added an estimated

5 Business Council of Australia, Submission 27, p. 2.

6 Mr Gary Dawson, Chief Executive Officer, Australian Food and Grocery Council, Proof Committee Hansard, 26 November 2013, p. 56.

7 Mr Gary Dawson, Chief Executive Officer, Australian Food and Grocery Council, Proof Committee Hansard, 26 November 2013, p. 56.

8 Australian Youth Climate Coalition (AYCC), Submission 4; Doctors for the Environment, Submission 11; Pacific Calling Partnership, Submission 12; Investor Group on Climate Change, Submission 14; Australian Council of Trade Unions (ACTU), Submission 21; Responsible Investment Association of Australia, Submission 22; WWF-Australia, Submission 24; Australian Conservation Foundation, Submission 28; Regnan—Government Research and Engagement, Submission 29; Wentworth Group of Concerned Scientists, Submission 32; Hepburn Wind, Submission 34; Dr Frank Jotzo, Submission 35.

9 Investor Group on Climate Change, Submission 14, p. 1.

10 Australian Industry Group, Submission 26, p. 3; see also Australian Environment Foundation, Submission 31, p. 7.

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$6.4 billion to the nation's tax bill (equivalent to a 10% increase in company tax revenue)'.11 The Minerals Council of Australia further estimated that 'the combined costs of permits, higher fuel costs and pass through of carbon costs on gas and electricity was an added burden of about $1.2 billion'.12

3.9 In supporting the repeal bills, Tourism Accommodation Australia (TAA) suggested that the carbon tax has had a major impact on the hotel accommodation industry. TAA considered that the carbon tax 'is stifling investment in accommodation in Australia' and 'adding directly to the current historically high cost of construction'.13 TAA submitted that:

Carbon pricing is impacting heavily on accommodation businesses, with profit reductions of up to 12% attributable to increased costs related to the tax. It is estimated that across the Australian accommodation industry, the carbon tax cost will be up to $114.9 million in its first year.

The repeal of carbon tax will cause significant price reductions and ease concerns for the accommodation hotel sector, depending on the carbon footprint of the particular properties or chains.14

3.10 Refrigerants Australia, the peak body representing the refrigerant and air conditioning industry, highlighted that the carbon tax has had a devastating impact on their members' businesses.15 Due to their emissions intensive nature, prices of refrigerants rose approximately three to six times after import.16 According to Refrigerants Australia:

…the refrigerant and air conditioning industry consists of about 20 000 businesses nationally, employing 173 000 people across Australia. The industry had overall expenditure of over $26 billion in 2012, which represented about 1.7% of national GDP and supports many essential uses, including nearly $30 billion worth of perishable food per annum from farm to domestic refrigerator.

Companies and operations across Australia—abattoirs, horticultural operators and fishers, for example—were subject to significantly increased costs of, at times, tens of thousands of dollars, which they could neither recover, offset nor predict.17

11 Minerals Council of Australia, Submission 20, p. 2.

12 Minerals Council of Australia, Submission 20, p. 2.

13 TAA, Submission 3, p. 7.

14 TAA, Submission 3, p. 4.

15 Mr Gregory Pickers, Executive Director, Refrigerants Australia, Proof Committee Hansard, 26 November 2013, p. 14.

16 Mr Gregory Pickers, Executive Director, Refrigerants Australia, Proof Committee Hansard, 26 November 2013, p. 14.

17 Mr Gregory Pickers, Executive Director, Refrigerants Australia, Proof Committee Hansard, 26 November 2013, p. 14.

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3.11 In the agricultural sector, the costs of the carbon tax have also had a significant impact. The National Farmers' Federation (NFF) informed the committee that, for an average-sized farm, there have been additional costs of up to $10 000 a

year as a result of the carbon pricing mechanism.18

3.12 In supporting the repeal of the carbon tax, the Australian Retailers Association (ARA) submitted that 'the abolition of the carbon tax would mean a spending boost of around $500 pa for consumers—a major boost for the retail sector'. Further:

…many of our members have supplied direct evidence of the price impact on their energy bills, with some retailers such as supermarkets and fast food operators reporting energy usage in excess of all other outgoings short of wages thanks to the impact of the tax. Major retailers are now anticipating savings for their businesses as well as increased consumer confidence and spending post 1 July 2014.19

3.13 In contrast, the Investor Group on Climate Change submitted that the carbon price has increased prices less than the 0.7% forecast by the Treasury before the start of the scheme20 and that 'market economists have estimated around a 0.3%-0.4% [Consumer Price Index] CPI increase attributable to carbon pricing across the economy'.21

3.14 It was also argued that factors other than the carbon price were impacting on increased costs of living. For example, the Investor Group on Climate Change pointed out that 'the carbon price makes up around 7% of retail electricity prices, compared with 43% for transmission and distribution charges'.22

3.15 The Australian Council of Social Service (ACOSS) submitted that 'it remains unclear whether repealing the carbon tax will lead to a significant decrease in household living costs' and that:

The drivers of energy price rises are much broader and more complex than the introduction of the carbon price alone including, for example, increased network expenditure.23

Impacts of the carbon tax on Australia's competitiveness 3.16 Several submissions also expressed concern about the impact of the carbon tax on Australia's international competitiveness. The committee heard evidence that the price on carbon could rise to anywhere between $38 to $68 per tonne of CO2

18 Mr Matthew Linnegar, Chief Executive Officer, National Farmers' Federation, Proof Committee Hansard, 26 November 2013, p. 23.

19 ARA, Submission 8, p. 1.

20 Investor Group on Climate Change, Submission 14, p. 3.

21 Investor Group on Climate Change, Submission 14, p. 3.

22 Investor Group on Climate Change, Submission 14, p. 4; see also Sustainable Population Australia, Submission 15, pp 1-2; and WWF-Australia, Submission 24, p. 3.

23 ACOSS, Submission 10, p. 5.

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emissions in the future, particularly if the carbon pricing scheme does not allow international trading.24

3.17 The Business Council of Australia, in acknowledging such projections, argued that Australia's carbon charge 'is now one of the highest in the world'.25 The Investor Group on Climate Change also recognised that Australia's carbon price mechanism is one of the most broad and highest cost national schemes in the world.26

3.18 The Australian Industry Group insisted that 'the tax is far too high in light of international prices'.27 The industry body informed the committee that:

Our assessment is that Australia's current high, fixed carbon tax is among the highest in the world. There are Scandinavian taxes with narrower or broader bases which are set at a higher level. There is a sub-national scheme in Canada which is set at a higher level. But of all major schemes ours is by far the highest price point combined with a relatively broad application across the economy and a relatively low level of free allocation of permits with is another critical issue for distinguishing schemes.28

3.19 The Minerals Council of Australia agreed that the Australian carbon pricing scheme is the world's biggest carbon tax and that none of Australia's minerals export competitors face an impost on the same scale.29

3.20 Similarly, the Cement Industry Foundation and National Lime Association of Australia argued that responses to climate change should be consistent globally, and that:

Australia's climate change policy must not expose the Australian cement and lime manufacturers to costs not faced by their international competitors. Our competitors are mainly from Asia—none of which face a nation-wide carbon price.30

3.21 TAA likewise recommended that:

…the inefficient carbon tax needs to be repealed to put Australia's accommodation industry back on a more level playing field with international competitors and other investment classes and to facilitate opportunities to attract new investment in high-quality accommodation

24 Mr Anthony Wood, Energy Program Director, Grattan Institute, Proof Committee Hansard, 26 November 2013, p. 7.

25 Business Council of Australia, Submission 27, p. 2 and see also p. 3.

26 Mr Nathan Fabian, Chief Executive Officer, Investor Group on Climate Change, Proof Committee Hansard, 26 November 2013, pp 8-9.

27 Australian Industry Group, Submission 26, p. 1 and see also Appendix B.

28 Mr Tennant Reed, Principal National Adviser, Public Policy, Australian Industry Group, Proof Committee Hansard, 26 November 2013, p. 54.

29 Minerals Council of Australia, Submission 20, p. 2; see also Australian Environment Foundation, Submission 31, p. 6.

30 Cement Industry Foundation and National Lime Association of Australia, Submission 25, p. 3.

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stock. This tax must be reversed, especially due to the high cost impacts it has on this important industry.31

3.22 In contrast, the Climate Institute argued 'it has been one of the enduring myths in the carbon policy debate' that Australia has the world's highest carbon tax.32 The Institute explained:

Putting aside the Nordic countries, who have had carbon prices in place since the early nineties that are at a higher levels than we currently have in Australia…you have places like the UK who have a carbon price floor which, coupled with the European emissions trading scheme, sees carbon prices in the order of what we currently have in place here. It is not a correct assertion to say that Australia's carbon price, as it currently stands in terms of the fixed price period, is above what other countries are doing. Certainly it is above what some countries are doing, like Japan, for example…33

3.23 Others also disagreed that repealing the carbon tax would boost Australia's economic growth, increase jobs and enhance Australia's international competitiveness, arguing that 'there is evidence there are many opportunities for growth and development in the renewable industry which would also increase employment'.34

Effectiveness of the carbon tax 3.24 Those opposed to the bills argued that the carbon price has been an effective and efficient measure to reduce greenhouse gas emissions.35 For example, WWF-Australia observed that:

In the first twelve months of the Clean Energy Act's operation, emissions in Australia's electricity sector fell by 7 per cent—equivalent to 12 million tonnes of carbon dioxide. Power generation from brown coal was down by 13 per cent and renewable energy generation grew by 25 per cent. While not all of these changes in the electricity sector can be attributed to the emissions trading scheme, the general consensus amongst analysts is that putting a price on carbon pollution has made polluting energy sources less competitive and renewable energy sources more competitive.36

31 TAA, Submission 3, p. 4.

32 Mr Ewin Jackson, Deputy Chief Executive Officer, The Climate Institute, Proof Committee Hansard, 26 November 2013, p. 34.

33 Mr Ewin Jackson, Deputy Chief Executive Officer, The Climate Institute, Proof Committee Hansard, 26 November 2013, p. 34.

34 Pacific Calling Partnership, Submission 12, p. 2.

35 Investor Group on Climate Change, Submission 14, p. 2; Doctors for the Environment Australia, Submission 11, p. 2; Australian Council of Trade Unions, Submission 21; see also Hepburn Wind, Submission 34, p. 2; Dr Frank Jotzo, Submission 35, pp 1-3.

36 WWF-Australia, Submission 24, p. 3; see also AYCC, Submission 4, p. 1.

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3.25 Similarly, the Investor Group on Climate Change submitted that a price on emissions is 'the most effective and efficient way to provide a long-term, transparent and certain regulatory framework to address carbon risks in investment portfolios.'37

3.26 The Group expressed support for 'policies that cut emissions at the lowest possible cost' and suggested that 'an internationally linked carbon market allows emissions reductions to occur where the cost is lowest' and therefore supported moving to a floating carbon price linked to the European Union emissions trading scheme from 1 July 2014.38 It pointed to recent OECD reports which found that 'market-based approaches like taxes and trading systems consistently reduced CO2 at a lower cost than other instruments'.39

3.27 ACOSS considered that a carbon price or emissions trading scheme would provide the greatest environmental benefit for the lowest economic cost.40 ACOSS expressed its concern that:

…the repeal of the carbon tax and the implementation of 'direct action' policies may come at a net cost to the Federal Budget. If the government foregoes revenue from a carbon price but retains the full household

compensation arrangements, savings may be sought from other programs to compensate for the impact on the Federal Budget. Similarly, direct expenditures to encourage polluters to reduce emissions represent a more costly approach to climate change mitigation. These additional costs may also have to come from scarce Federal Budget revenue.41

3.28 In contrast to these positions, The Grattan Institute conceded that Australia has reduced its emissions intensity over the past decades without pricing on carbon:

There is a long-term trend for Australia's energy intensity, and therefore emissions per dollar of GDP to go down. That has been going on since the mid-seventies, independent of a carbon price.42

Timing of the repeal 3.29 The committee received evidence outlining a number of issues relating to the timing of the passage of the bills, and transitional issues involved in the removal of the carbon pricing mechanism.

3.30 The intention is for the carbon tax to end on 30 June 2014, regardless of when the legislation is passed.43 Several submitters and witnesses called for the prompt

37 Investor Group on Climate Change, Submission 14, p. 1.

38 Investor Group on Climate Change, Submission 14, p. 1.

39 Investor Group on Climate Change, Submission 14, p. 4.

40 See, for example, ACOSS, Submission 10, p. 4.

41 ACOSS, Submission 10, p. 5.

42 Mr Anthony Wood, Energy Program Director, Grattan Institute, Proof Committee Hansard, 26 November 2013, p. 7.

43 Carbon Tax Repeal Bills, Explanatory Memorandum, pp 8-10.

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passage of the bills and/or raised concerns about problems that may arise if the bills are not passed until after 30 June 2014.44 In particular, the Australian Industry Group was concerned that any:

...delay and uncertainty about the timing would impose unnecessary cost and confusion on industry and households, primarily through the electricity market.45

3.31 The Minerals Council of Australia similarly argued that:

The end of the financial year is the right time to act to ensure business and investor confidence in the Australian economy. The minerals industry urges the Parliament to respect the authority the electorate has given the Government to repeal the Clean Energy Act.46

3.32 However, the Minerals Council of Australia was concerned about any delays:

There will be minimal transitional issues if the Bill is passed in a timely manner. While the Government has sought to support investor confidence by framing the Bill in a way which deals with a delay beyond 30 June 2014, (operating retrospectively in the first instance), other issues may arise for business the longer the Bill takes to pass.

While the Bill seeks to be clear about the state of carbon liabilities post 30 June 2014—that is, retrospective application if the Bill is passed after that date—it is less clear about the operation of the compliance mechanisms. Minerals companies take their compliance obligations seriously and it is a key concern for investors.47

3.33 The Business Council of Australia agreed and stated:

Any delay in the repeal will have adverse impacts on companies liable under the current legislation.

Liable companies will continue to face compliance obligations under the [Carbon Pricing Mechanism] CPM and associated non-recoverable costs for a yet-to-be-determined period, possibly into the next financial year or longer.48

44 Australian Aluminium Council, Submission 23, p. 1; Energy Industry Groups, Submission 17, p. 5; Minerals Council of Australia, Submission 20, p. 4; COzero, Submission 16, p. 1; Cement Industry Federation and National Lime Association of Australia, Submission 25, p. 4; Australian Industry Group, Submission 26, p. 3; Business Council of Australia, Submission 27, pp 3-5; Pacific Hydro, Submission 33, pp 6-7.

45 Australian Industry Group, Submission 26, p. 1.

46 Minerals Council of Australia, Submission 20, p. 4.

47 Minerals Council of Australia, Submission 20, p. 4.

48 Business Council of Australia, Submission 27, p. 4.

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3.34 Refrigerants Australia highlighted that unless the Senate expeditiously passes the repeal legislation, their billion dollar industry could face increased costs and shortages.49

3.35 The Clean Energy legislation introduced an equivalent carbon price on synthetic greenhouse gases (SGGs) at the point of import or manufacture. There is a small risk that there could be potential shortages in SGGs in the lead-up to the repeal of the equivalent carbon price on 1 July 2014.50 This is due to reduced SGG imports in anticipation of the lower SGG levy from 1 July 2014 and domestic businesses reducing levels of SGG inventories in order to delay purchases of SGGs until after repeal of the carbon tax.51

3.36 To address this risk, an exemption from the equivalent carbon price will be made for the import of SGGs between 1 April and 30 June 2014.52 Refrigerants Australia stated that these measures would 'allow companies to pre-position refrigeration and hopefully avoid any lack of supply'.53

Sufficient time and notice needed

3.37 In addition to the timely repeal of the bills, many called for sufficient time to make arrangements relating to the repeal of the carbon price mechanism. The Business Council of Australia submitted that:

Assessing contracts and determining price variations will take time if it is to be done properly. The repeal legislation has not factored in that companies will not be able to instantly change arrangements and that at a minimum companies will need three months to review contracting arrangements.54

3.38 The Business Council of Australia therefore recommended that the Government:

…take into consideration that companies will require at least three months once the legislation is passed to amend the range of contracts that they have in place with carbon pass-through clauses and ensure companies are not penalised during this time.55

49 Dr Gregory Picker, Executive Director, Refrigerants Australia, Proof Committee Hansard, 26 November 2013, p. 15.

50 Ozone Protection and Synthetic Greenhouse Gas (Import Levy) (Transitional Provisions) Bill 2013, Explanatory Memorandum, p. 6.

51 Ozone Protection and Synthetic Greenhouse Gas (Import Levy) (Transitional Provisions) Bill 2013, Explanatory Memorandum, p. 6.

52 Ozone Protection and Synthetic Greenhouse Gas (Import Levy) (Transitional Provisions) Bill 2013, Explanatory Memorandum, p. 6.

53 Dr Gregory Picker, Executive Director, Refrigerants Australia, Proof Committee Hansard, 26 November 2013, p. 20.

54 Business Council of Australia, Submission 27, p. 3 and see also p. 5.

55 Business Council of Australia, Submission 27, p. 3.

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3.39 COzero similarly raised concerns about the implications of the repeal bills in terms of existing contractual arrangements:

Electricity contracts, in particular, hedged contracts, have been entered into by Liable Entities and Counterparties until the end of the 2015 financial year. These contracts have an implied carbon price in them. Regardless of whether the Carbon Tax is removed, or not, these contracts will have to be honored with a carbon component that will have to be either absorbed by Liable Entities, or passed on.56

3.40 Origin Energy Limited (Origin) also emphasised the need for sufficient notice to be given to liable parties to implement repeal 'to ensure that any benefits from carbon price repeal are passed onto consumers in a timely manner'.57 Origin explained:

The carbon price was a very complex piece of legislation to implement in the energy markets. Over six months formal notice was given for this implementation and based on our experience a similar period should be given for its repeal to ensure that any benefits are passed onto consumers in a timely manner.58

Need for alternatives to be in place before repeal

3.41 Several submissions suggested that the carbon pricing mechanism should not be repealed until appropriate alternative measures are in place to reduce greenhouse gas emissions.59 For example, the Responsible Investment Association Australia (RIAA) submitted that:

…we cannot support the repeal of the current Clean Energy legislation due to the resulting policy uncertainty that this will and is already creating. Importantly, it is difficult to assess or support an alternative policy framework until sufficient detail exists upon which our community can make an assessment based on its merits. To date, this detail does not exist.60

3.42 The Public Health Association of Australia submitted that it would 'prefer to see a complete alternative package of measures developed and publicly discussed before repeal of the existing legislative package occurs'.61

3.43 General Electric (GE) stated its preference for the proposed removal of carbon pricing to be 'conjoined' with its proposed replacement (Direct Action including the Emissions Reduction Fund).62

56 COzero, Submission 16, p. 1.

57 Origin, Submission 6, p. 1.

58 Origin, Submission 6, p. 3.

59 WWF-Australia, Submission 24, pp 4 and 11; Australian Conservation Foundation, Submission 28, p. 2; Regnan - Governance Research & Engagement, Submission 29, p. 2.

60 RIAA, Submission 22, p. 2.

61 PHAA, Submission 5, p. 6; see also Doctors for the Environment Australia, Submission 11, p. 5.

62 GE, Submission 1, p. 1.

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3.44 ClimateWorks Australia submitted that if the carbon tax legislation is repealed, 'it will need to be replaced with measures that will deliver equivalent emissions reductions (and more), and which address both the price and non-price barriers to achievement of emissions reductions'.63

3.45 Several submitters and witnesses also pointed out that any delay in emissions reductions will increase the ultimate cost of delivering abatement.64

Role of Australian Competition and Consumer Commission 3.46 Several submitters and witnesses raised concerns about the powers proposed to be given to the Australian Competition and Consumer Commission (ACCC) to monitor prices following the repeal of the carbon price mechanism.65 These powers are contained in the Clean Energy Legislation (Carbon Tax Repeal) Bill 2013.

3.47 The Business Council of Australia acknowledged that:

The role of the ACCC will be important in ensuring community confidence that the removal of the carbon tax is happening in an appropriate manner. There are elements of the repeal legislation, however, which make the role of the ACCC and the matters it should take into consideration in assessing whether there has been price exploitation unclear and subjective.66

3.48 Concerns were raised about the drafting of the relevant provisions governing the powers of the ACCC. For example, energy industry groups were concerned that the powers are 'vaguely worded' and could 'interfere with otherwise efficient energy markets' and would 'duplicate existing state government powers to monitor and regulate retail energy prices'.67

3.49 Others also raised concerns about the absence of a definition for the term 'unreasonably high' in relation to price exploitation in proposed paragraph 60C.68 For example, the energy industry groups argued that this fails to consider the specificities of the energy industry:

In a competitive energy market, prices will vary by supplier. Businesses that charge high prices will lose market share to those offering a more affordable service. Different businesses will have different cost structures and offer different products, and so prices will vary.

Furthermore, as outlined above, electricity and gas customers may be on market or standing offers, which vary in price. Market offers typically give

63 ClimateWorks Australia, Submission 13, p. 2.

64 ClimateWorks Australia, Submission 13, p. 2; WWF-Australia, Submission 24, p. 11.

65 For example, Origin, Submission 6, p. 1; Energy Industry Groups, Submission 17, p. 1; Business Council of Australia, Submission 27, p. 2; Pacific Hydro, Submission 33, pp 5-6.

66 Business Council of Australia, Submission 27, p. 4 and also p. 6.

67 Energy Industry Groups, Submission 17, p. 3; see also Origin, Submission 6, p. 1.

68 Proposed paragraph 60C requires that a corporation must not engage in price exploitation in relation to the carbon tax repeal, with price exploitation occurring if the price for the supply is unreasonably high.

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a discount in exchange for meeting certain conditions, such as a contract length, or if bills are paid on time.

Given this variation, the energy industry does not see how the ACCC would be able to establish what an “unreasonably high” charge for electricity could be.69

3.50 Submissions concerned about the proposed ACCC powers commented that they appeared to be based on those used for the introduction of the Goods and Services Tax (GST).70 However, it was noted that the carbon price operates differently to the GST, and in particular, is not a fixed percentage cost. It is therefore difficult to quantify its exact impact on prices.71 The energy industry groups gave the following example to illustrate their concerns:

…the introduction of the carbon tax meant that low- or zero-emissions generators received increased margins while highly emissive generators faced lower margins. One would expect this process to reverse once the carbon tax is repealed. The likely net effect would be that margins would return to the same level they were before the carbon tax was implemented. Yet, under these provisions it is possible the ACCC could take action. This is a highly inappropriate consequence and may increase risks for energy businesses.72

3.51 Similarly, the Australian Industry Group submitted that:

…outside of energy prices, carbon price pass-throughs have been limited and the impacts of repeal will also be limited. An Ai Group survey earlier in 2013 found that 70% of businesses in the manufacturing, services and construction sectors were unable to pass through any of their carbon-related energy cost increases to customers. The remainder of the sample were able to pass through small amounts of their carbon cost. Across all businesses, just 6% of total carbon costs were estimated to have been passed on to customers. This strongly suggests that the ACCC should be cautious and focussed in its price monitoring role, as significant price movements are only likely in the area of electricity and gas.73

3.52 Concerns were also expressed about the drafting of paragraph 60C(3)(a) of the Clean Energy Legislation (Carbon Tax Repeal) Bill 2013 which requires the ACCC to consider the supplier's costs, supply and demand conditions and any other matter. It was suggested that the paragraph be expanded to include additional considerations such as wholesale energy costs, network price determinations,

69 Energy Industry Groups, Submission 17, p. 3; see also Business Council of Australia, Submission 27, p. 4 and Pacific Hydro, Submission 33, pp 5-6.

70 See, for example, Origin, Submission 6, Appendix A; Energy Industry Groups, Submission 17, p. 3.

71 Origin, Submission 6, Appendix A; Energy Industry Groups, Submission 17, pp 3-4.

72 Energy Industry Groups, Submission 17, p. 3.

73 Australian Industry Group, Submission 26, p. 3.

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compliance with state and federal legislation, regulated prices for electricity and gas, and the overall risk profile of the business. 74

3.53 Others were also concerned about proposed new section 60E of the Clean Energy Legislation (Carbon Tax Repeal) Bill 2013, which enables the ACCC to send out notices to prevent price exploitation, and allow the ACCC to specify a maximum price that may be charged. The energy industry groups argued that the 'ACCC is not the appropriate authority to have the power to effectively set maximum energy prices'.75 Similarly, the Business Council of Australia was concerned that 'this would appear to be an overreach in terms of the role and capacity of the ACCC'.76

3.54 Origin further suggested a regulation making power be included to give flexibility for the government to specify what does not constitute price exploitation, and that the Explanatory Memorandum provide detailed examples of how the price exploitation provisions will be applied.77

3.55 Others supported the use of the ACCC. For example, the Australian Retailers Association expressed support for the use of the ACCC 'to see cost savings being passed onto businesses and consumers'.78 ACOSS submitted that the price monitoring powers of the ACCC would be 'essential consumer protection during a period of consuming price adjustment'.79

Australian Competition and Consumer Commission's response

3.56 The ACCC informed the committee that it believes it will be able to adequately examine carbon price charges and ensure that they are not being passed on to consumers once the carbon tax is repealed.80 The ACCC advised that:

We will have the capacity to look at individual businesses and the decisions they made in terms of the introduction of the carbon price. We will be able to ensure that they take similar decisions on the way out. I think it is fair to say there are a number of factors we will take into account but, at the end of the day, that very simple proposition that where there is a carbon price component in the current price we will look to ensure that it is removed.81

74 Origin, Submission 6, Appendix A; Energy Industry Groups, Submission 17, p. 4.

75 Energy Industry Groups, Submission 17, p. 5.

76 Business Council of Australia, Submission 27, p. 6; and see also Pacific Hydro, Submission 33, p. 6.

77 Origin, Submission 6, Appendix A.

78 ARA, Submission 8, p. 1.

79 ACOSS, Submission 10, p. 5.

80 Mr Scott Gregson, Group General Manager, Enforcement Group, Australian Competition and Consumer Commission, Proof Committee Hansard, 26 November 2013, p. 40.

81 Mr Scott Gregson, Group General Manager, Enforcement Group, Australian Competition and Consumer Commission, Proof Committee Hansard, 26 November 2013, p. 40.

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3.57 The ACCC also confirmed that in relation to electricity price increases, it expects that the 9% per cent price increase attributed to the carbon price will be removed.82

Abolition of the Climate Change Authority and Clean Energy Finance Corporation 3.58 Some submissions expressed concern about the abolition of the Climate Change Authority and the Clean Energy Finance Corporation. These submissions took the view that it was important to have independent analysis and advice on emissions reductions and the investment in clean energy technology.83

3.59 In this context, several submissions raised the issue of reviews of the Renewable Energy Target (RET), which are currently undertaken by the Climate Change Authority. The Business Council of Australia pointed out that:

With the wind-up of the Climate Change Authority, consideration needs to be given to the arrangements for the 2014 review of the Renewable Energy Target. To remove any ambiguity it will be important for the government to make clear the matters that will be included in the review either in the legislation or in related documents.84

3.60 The Business Council of Australia suggested that the 2014 review should include, for example, explicit consideration of the consequences of changes in demand for electricity, the repeal of the carbon price, and the impact of the RET on business electricity prices.85

3.61 GE noted that the intention is for future reviews of the RET to be undertaken, at the minister's direction, by the Department of the Environment, in consultation with the Department of Industry.86 However, GE suggested that future reviews of the RET be conducted every four years, rather than every two years.87 GE also suggested that the Climate Change Authority (Abolition) Bill 2013 be amended to reinstate current subsections 162(7)-(14) to provide guidance to the reviewer.88

82 Mr Scott Gregson, Group General Manager, Enforcement Group, Australian Competition and Consumer Commission, Proof Committee Hansard, 26 November 2013, p. 40.

83 For example, AYCC, Submission 4, p. 2; Public Health Association of Australia, Submission 5, p. 7; ClimateWorks Australia, Submission 13, p. 5; Investor Group on Climate Change, Submission 14, p. 2; ACTU, Submission 21, p. 2; WWF-Australia, Submission 24, pp 4 and 18; Australian Conservation Foundation, Submission 28, p. 6; Regnan - Governance Research & Engagement, Submission 29, p. 2; Wentworth Group of Concerned Scientists, Submission 32, p. 5; Dr Frank Jotzo, Submission 35, p. 3.

84 Business Council of Australia, Submission 27, p. 3.

85 Business Council of Australia, Submission 27, pp 4 and 6.

86 GE, Submission 1, p. 2; Climate Change Authority (Abolition) Bill 2013, Explanatory Memorandum, p. 11.

87 GE, Submission 1, p. 2; see also Australian Industry Group, Submission 26, p. 4; and Pacific Hydro, Submission 33, pp 7-8.

88 GE, Submission 1, p. 2.

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3.62 Origin suggested that the Productivity Commission should play a role in the review of the RET, and that a clause should be inserted that the Department of the Environment 'must take into account' advice of the Productivity Commission.89

3.63 The Department of the Environment informed the committee that, despite the abolition of the Climate Change Authority, a number of reporting and monitoring mechanisms will remain in place:

The things that will remain are the National Greenhouse and Energy Reporting System, which is the mechanism by which companies report their emissions and energy use and also information about energy efficiency. The Australian National Registry of Emissions Units will remain in place, and that supports the Carbon Farming Initiative…which will also remain in place. So all of that infrastructure to support the measurement, verification and recording of emissions will remain in place.90

3.64 Several submissions also called for the Government to reconsider the abolition of the Clean Energy Finance Corporation (CEFC).91 It was argued that:

…the CEFC co-investment model is a prudent and cost effective way to allocate limited public funds to leverage private investment to do the heavy lifting in the investment into a low carbon transition.92

3.65 For example, the Investor Group on Climate Change argued that the CEFC has played a key role in advancing Australia's response to climate change and in:

…attracting private capital to low carbon opportunities globally. The ability of co-financing organisations (such as CEFC) to achieve emissions reductions with a positive financial return to government warrants their inclusion in the Government's climate change policy suite.93

3.66 Indeed, the CEFC itself made a submission to the committee outlining its achievements since its inception:

By working with private sector co-financiers, the CEFC multiplies the total amount of funding available for investment. Through investing $536 million of CEFC funds (including Low Carbon Australia's portfolio) and $1.55 billion in private sector co-financing, the CEFC has facilitated

over $2.2 billion in projects, delivered 3.88 million tonnes of abatement,

89 Origin, Submission 6, p. 3.

90 Mr Simon Writer, Assistant Secretary, Department of the Environment, Proof Committee Hansard, 26 November 2013, p. 70.

91 Epuron, Submission 7, p. 1; AYCC, Submission 4, p. 3; Professor John A Mathews, Submission 9; Investor Group on Climate Change, Submission 14, p. 2; RIAA, Submission 22, p. 2; WWF-Australia, Submission 24, pp 4, 17-18; Australian Conservation Foundation, Submission 28, pp 7-8; PacificHydro, Submission 33, pp 1-2; Dr Frank Jotzo, Submission 35, p. 3.

92 RIAA, Submission 22, p. 2.

93 Investor Group on Climate Change, Submission 14, p. 2.

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and achieved it at negative cost (i.e. net return or benefit to the taxpayer) of $2.40 per tonne of abatement.94

3.67 The Department of the Environment outlined to the committee that Government's policy position on abolishing the Clean Energy Finance Corporation:

The government has been very clear that the premise of abolition is that it is a market activity that should be delivered not by government but by the private sector.95

Committee comment 3.68 The committee supports the Government's intention to abolish the carbon tax.

3.69 Evidence received by the committee shows that Australia's carbon tax is one of the highest and broadest carbon taxes in the world. The carbon tax has had a significant impact on costs for Australian businesses and families. In particular, the price of electricity and gas has increased to record levels.

3.70 In response to increased energy costs and compliance measures, struggling businesses have been forced to pass these costs on to customers. Where circumstances have not allowed businesses to pass on these costs, they have been forced to bear the brunt of the new tax.

3.71 The committee is concerned that the high price and broad-base of the carbon tax has placed Australian industries at a disadvantage internationally. Australian businesses are forced to compete with international competitors who are not encumbered by such a high carbon price. The carbon tax has made the cost of doing business in Australia more expensive. The committee received evidence that shows that removing the burden of the carbon tax will allow businesses to compete more evenly in international markets and encourage investment in Australian industries.

3.72 The committee is satisfied that the additional powers that are provided to the ACCC will ensure that imposts charged as a result of the carbon tax will come down quickly. The ACCC will have the capacity to look at individual businesses and the decisions they made following the introduction of the carbon tax and see that they are reversed when it is removed. The committee also notes that the ACCC is confident that the 9% increase in electricity prices attributed to the carbon tax will be reversed once the tax is repealed.

3.73 The committee agrees with the bill's intention to abolish the Clean Energy Finance Corporation and the Climate Change Authority. The use of $10 billion in taxpayer money to fund what essentially amounts to a private bank is not justified. The removal of the carbon tax means that the Climate Change Authority is no longer needed to administer the scheme. The committee is satisfied that other government departments will be able to successfully undertake any future climate policy implementation.

94 Clean Energy Finance Corporation, Submission 30, p. 2.

95 Dr Gordon de Brouwer, Secretary, Department of the Environment, Proof Committee Hansard, 26 November 2013, p. 66.

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3.74 Many submitters recommended to the committee that the repeal of the carbon tax occur immediately and that the Senate not unduly delay the benefits that removal of the carbon tax will have for Australian businesses. The committee also notes the concerns of businesses that if repeal of the carbon tax is delayed until after 1 July 2014 it will create uncertainty. In particular, the retrospective repeal of the carbon tax after 1 July 2014 would create confusion and red tape.

3.75 The committee notes that Australia has had a good track record of protecting the environment and reducing carbon emissions prior to the introduction of the carbon tax. The committee encourages the Government to give consideration to its Direct Action Plan to replace the carbon tax to ensure that there is policy continuity for Australia to meet its target of reducing carbon emission by 5% by 2020.

3.76 The committee recommends that the bills be passed.

Recommendation 1

3.77 The committee recommends that the bills be passed.

Senator John Williams Chair

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Dissenting Report from the Australian Labor Party 1.1 Labor has a clear position on climate change.

1.2 Labor understands there is a strong foundation of scientific fact underpinning the imperative to reduce global greenhouse gas emissions to reduce the risk of global warming above 2 degrees.

1.3 Labor's approach to reducing emissions is to repeal the carbon tax and keep in place the already legislated emissions trading scheme which puts a legal cap on carbon pollution. This lets business work out the cheapest and most effective way to operate within that cap and is overwhelmingly endorsed by economists as the most cost effective and efficient emissions reduction method.

1.4 The first twelve months of the carbon price has seen emissions from electricity fall with coal power generation down and renewable energy generation up. The price on carbon pollution has been effective in increasing the competitiveness of renewable energy generation. Meanwhile, Australia's economy grew at trend in 2012-13 while additional government assistance to households has more than offset any price rises caused by the carbon price.

1.5 The binding caps will ensure Australia meets its international emissions reduction targets under the second commitment period of the Kyoto Protocol (2013 to 2020) and under the United Nations Framework Convention on Climate Change.

1.6 The flexible-price would bring the Australian carbon price into line with the carbon price prevailing under the European Union Emission Trading System, which is currently expected to be around $6 per tonne of emissions. Moving to flexible-price emissions trading would ensure Australia meets its international emissions reduction commitments, reduce compliance costs and transaction costs for businesses, increase flexibility, and improve risk management.

1.7 Australia has not been alone. 99 countries, covering 80 per cent of global emissions and including all of the major emitters have pledged to reduce or limit emissions by 2020.1

1.8 The Clean Energy Legislation (Carbon Tax Repeal) Bill 2013 and related bills remove the necessary tools for Australia to tackle climate change.

1.9 In recommending the repeal of the price on carbon mechanism, the Coalition majority report is showing a disregard for science, a disregard for future generations and a disregard for the environment. The Coalition's plan is a recipe to do nothing, and sets Australia up for unnecessarily higher costs in years to come.

1.10 Direct action without legislated emissions reduction targets, as proposed by the Coalition Government (but not included in this legislative package) will leave Australia without a long term emissions reduction method. The repeal bills leave our nation without a path to help industry, households and business reduce emissions. As

1 Climate Change Authority Targets and Progress Review Draft Report October 2013

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many submitters to the inquiry highlighted the uncertainty around how the problem of carbon emissions will be managed into the future is damaging to business and investment decisions.

1.11 The repeal bills also do away with worthwhile independent institutions established by the former Labor Government to tackle climate change including the Clean Energy Finance Corporation (CEFC) and the Climate Change Authority. The Government has also moved to reduce funding to the independent Australian Renewable Energy Agency (ARENA).

1.12 The CEFC facilitates comprehensive commercial loans for both renewable and cleaner energy technology investments and is set to fund emissions reductions at a negative cost (turn a profit) to government. The Government’s alternative plan for an Emissions Reduction Fund will consume billions from Consolidated Revenue. ARENA provides funding to improve the competitiveness of renewable energy technologies, assisting particularly at the difficult-to-fund points in the product life cycle. The Climate Change Authority provides independent advice on Australia’s emissions reduction targets, its functions are proposed to be subsumed by the Environment Department removing the independent advisory role thereby lowering transparency. These are all vitally important institutions for tackling climate change and accelerating the roll out of clean energy.

1.13 The plan the Coalition Government has put forward to the Parliament demonstrates that this government isn’t serious about taking meaningful action on climate change. Last month, we heard John Howard tell a London audience that those of us who accept that climate change is real are a bunch of "religious zealots", and that he'll trust his "instinct" rather than the overwhelming evidence of the world's climate scientists.

1.14 Prime Minister Abbott accused the United Nations Climate Chief of "talking through her hat", while Minister for the Environment, Hon Greg Hunt MP, used Wikipedia to contradict her opinion in a BBC interview.

1.15 Based on the Coalition Government's policies, Australia’s rating has dropped to 57th out of 61 countries in its efforts to mitigate climate change as rated by the Climate Change Performance Index.

1.16 Embarrassingly, at the recent Warsaw Climate Change Conference Australia received four of five ‘Fossil of the Day’ "awards", recognising the Coalition's backward proposal to wind back the carbon price mechanism and abandon support for research and clean energy.

1.17 Meanwhile, the Coalition Government has not been able to come up with one credible scientist or economist who's willing to stand up and back their Direct Action plan, which is so scant on detail four years after the announcement.

1.18 A recent survey showed that 86 per cent of economists back an emissions trading scheme as the cheapest and most effective way to tackle carbon pollution.2

2 http://www.smh.com.au/federal-politics/political-opinion/economists-remain-convinced-carbon-tax-or-ets-is-the-way-forward-20131027-2w9rv.html?rand=1382909118970

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Former Treasury Secretary Ken Henry called the Coalition’s direct action policy a “bizarre” strategy, which involves the Government paying big polluters in a scheme that will cost more and will reduce productivity. 3

1.19 This month, the OECD released a report confirming that countries could achieve higher levels of emissions reductions at much lower cost if they relied on a market-based policy.4

1.20 The necessity to act only grows each year. Reports show that Australia is on track for its warmest year ever, while the UN World Meteorological Organisation reports that the amount of carbon dioxide in our atmosphere is at a record high.5 The latest Intergovernmental Panel on Climate Change report on the physical science of climate change states:

Warming of the climate system is unequivocal, and since the 1950s, many of the observed changes are unprecedented over decades to millennia. It is extremely likely (greater than 95 per cent) that human influence has been the dominant cause of the observed warming since the mid-20th century.6

1.21 The Wentworth Group of Concerned Scientists highlighted that current scientific trends forecast climate change to have very negative impacts on the condition of Australia's natural resources (soil, water, biodiversity and coastal zone) and the human communities that depend on the ecosystem services provided, over the 21st century and beyond.7

1.22 The immediate and long term costs of allowing warming greater than 2 degrees are the core reason for acting now with a policy suite that is designed to scale up over time. Removing this policy suite for the sake of a slight reduction in utilities costs in one financial year is reckless and irresponsible.

1.23 Despite the shallow rhetoric of the Coalition stating it believes in climate change and that it supports action - it’s clear that nothing could be further from the truth. If the Coalition Government does believe in climate change then it wouldn’t be putting Australian in a position where it falls behind in playing its part in global action and leaves the Australian economy exposed to future unnecessary costs because we have failed to take adequate action.

3 http://www.theaustralian.com.au/national-affairs/policy/tony-abbotts-direct-action-climate-policy-bizarre-ken-henry/story-e6frg6xf-1226752735032

4 http://www.oecd-ilibrary.org/environment-and-sustainable-development/climate-and-carbon_5k3z11hjg6r7-en

5 http://www.wmo.int/pages/mediacentre/press_releases/pr_981_EN.html

6 IPCC Report, September 2013

7 Submission 32, Wentworth Group of Concerned Scientists

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2. An emissions trading scheme is the most rational policy choice for Australia 2.1 In its latest report on climate change policies, the OECD highlighted that those serious about tackling climate change are implementing a price on carbon.

If governments are serious in their fight against climate change, the core message of this reform must be that the cost of CO2 emissions will gradually increase, creating a strong economic incentive to reduce the carbon entanglement and to shift towards a zero carbon trajectory. A central feature of such an approach is placing a price on carbon.1

2.2 For Australia to have a carbon pricing mechanism in place and remove it means we are turning our backs on the world. The rest of the world is in unison with using a carbon pricing mechanism to reduce carbon pollution except for the Current Australian Government. China, long held up by the Coalition as not acting, is implementing seven carbon pricing trials and in one its carbon price has surged higher than Europe's.2 The President of the United States of America has outlined his desire for a national market-based solution to climate change.3

2.3 Dr Frank Jotzo highlighted in his submission the clear benefits to the Australian economy of a carbon price mechanism in tackling climate change.

The carbon pricing mechanism currently in place is an economically sound basis for climate change mitigation policy in Australia. Repealing Australia’s Clean Energy Legislation and related bills is undesirable if a lasting policy framework for greenhouse gas emissions reductions is to be established, and if emissions reductions are to be achieved cost effectively. If emissions reductions are to be achieved without carbon pricing, then regulatory and subsidy approaches will need to play a larger role. These are generally more costly and less effective in creating incentives for long-term investment in low-carbon options by Australia’s businesses. Repeal will exacerbate policy uncertainty, with adverse effects on investment.4

2.4 Mr Nathan Fabian, Chief Executive Officer of the Investor Group on Climate Change noted five key elements members of his organisation consider important include:

…a scheme cap that reflects an emissions reduction objective; broad coverage of sources of emissions in the economy; transitional assistance arrangements for trade exposed sectors; the ability to access international

1 OECD October 2013 report, Climate and Carbon - Aligning Prices and Policies

2 http://www.bloomberg.com/news/2013-08-21/carbon-permits-rise-on-china-s-first-market-to-exceed-eu-price.html

3 President Barack Obama, 2013 State of the Union Address,

4 Submission 35, Dr Frank Jotzo

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permits to achieve least-cost abatement; and the capacity to respond to deeper reduction targets as necessary over time.5

2.5 While in its submission, the Wentworth Group of Concerned Scientists noted that the Productivity Commission considers "an emissions trading scheme is by far the most cost effective way for Australia to contribute to global efforts to mitigate climate change".6

2.6 Mr Fabian highlighted that the world is acting and the important step is to set in place appropriate policies to make the necessary emissions reductions in the long term:

We see accelerating emissions reduction ambition in most countries around the world. As deep reductions will be needed to achieve a stable climate outcome, the policy conversation that matters for Australia and all nations now is: how can deeper reductions targets be achieved, and how quickly? We are careful to differentiate between ambition to reduce emissions and the types of instruments used. Our experience tells us that those holding out for a single global trading scheme are likely to be disappointed. Nations are implementing emissions reductions policies that make sense for their circumstances. These include cap and trade schemes in some countries, including China and Europe; industry regulation in the US; and co-financing vehicles in many countries.

South Africa's carbon tax will take effect on 1 January 2015, and on the same day South Korea's emissions trading scheme will start. It is our view that an emissions trading scheme with a cap makes sense for Australia's circumstances. That is because it is in the interest of Australian companies to be able to contribute to emissions reductions at least cost while reducing their own emissions from domestic plant and equipment over time, and in a time frame that makes sense to them.7

5 Mr Nathan Fabian, Chief Executive Officer, Investor Group on Climate Change, Committee Hansard, 26 November, 2013, p.8.

6 Submission 32, Wentworth Group of Concerned Scientists

7 Mr Nathan Fabian, Chief Executive Officer, Investor Group on Climate Change, Committee Hansard, 26 November, 2013, p.8.

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3. The Coalition is creating investment uncertainty for Australia 3.1 The Coalition Government's repeal bills and Direct Action policy are undermining investment certainty in renewable energy and energy efficiency measures. If there is bipartisan recognition that climate change is a serious concern and we must limit Australia's emissions, we need a long term framework with which to provide some certainty to investors, business, the community and other nations. The Australian Conservation Foundation eloquently highlights this concern in its submission:

Long term targets are important. Business and the broader Australian community must be given clear signals that decarbonisation will occur, in order to allow for investment decisions to be made in the context of awareness of the declining availability of permission to pollute.1

3.2 Direct Action has a 5% from 2000 levels by 2020 emissions reduction target and a limited four year budget. The 5% target is not legislated. It is not binding. The Government has insisted that there will be no further expenditure across the four year budget. However, everything is unknown until the Government's review processes are finalised sometime in 2014. The submission from the Responsible Investment Association Australia noted that the scant level of detail on Direct Action is making it difficult for the community to assess the merits of the policy.2

3.3 Together, this is an impediment to long term investment in the Australian renewable energy sector. Institutional investors such as the Investor Group on Climate Change suggest that it is easier and more secure to invest in countries such as Ireland, the UK and USA because of policy certainty than it is in Australia now. Investors like long term certainty with the lowest possible risk and reasonable returns.

3.4 Mr Fabian provided the committee of the scenario that his members would prefer to see from climate change policy.

We are affiliated with other institutional investor groups around the world that collectively represent $20 trillion of investment funds. Our groups around the world have similar aims—that is, transparent, long-term and relatively certain policies that can assist us to allocate capital to low-carbon activities. In the absence of an alternative policy proposal that is likely to be at least as effective and efficient as the carbon-pricing framework we do not support repealing Australia's carbon legislation and recommended the repeal bill not proceed.3

….I think the pension community globally realises that, as it has invested across the global economy, it desperately wants to see a staged reduction in emissions around economies. We do not want to see radical policy action at any time to catch up to a gap. That is our biggest concern. The risk of

1 Submission 28, Australian Conservation Foundation

2 Submission 22, Responsible Investment Association Australia

3 Mr Nathan Fabian, Chief Executive Officer, Investor Group on Climate Change, Committee Hansard, 26 November, 2013, p.8.

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systemic events affecting financial markets are well documented and clear. I do not think there is any doubt about that. Were there to be a broad devaluation of emissions-intensive assets around the world because of radical policy action, which may happen,—we would prefer that it did not happen—is why we argue for steady policy change over time. 4

3.5 While, Mr Wood, Energy Program Director with the Grattan Institute highlighted the shortcomings of this short term outlook.

Industry, I would suggest, is faced with a continuing period of significant uncertainty, because until the government has decided what it is going to do beyond 2020 or beyond five per cent—and my understanding is that that is going to be decided in the lead-up to 2015—there is significant uncertainty for industry in how it invests in the long term. Even the current funding that has been announced under the Emissions Reduction Fund is not in the long term. So if you are looking to invest in low-emission technology, particularly if you want to keep up with your competitors overseas—such as companies who are already working under emissions trading schemes in China, where they have pilot schemes in place—then you are going to be having some difficulty in working out what sort of carbon price you build into your business model. So I think that uncertainty will pertain until the government decides how it is going to address its actions either beyond five per cent or beyond 2020. I think that uncertainty is quite a bad situation for business, and I am sure that is one of the issues business would be raising. 5

3.6 It is not just big institution investors that have been hit by the investment uncertainty created by the Coalition Government. In its submission, Hepburn Wind, noted that at the time its 2000 members invested in 2008-09, there was bipartisan support for a carbon price mechanism.

Many of our members are ‘mum and dad investors’ and contributed personally significant funds, including personal superannuation, based on unambiguous support for carbon pricing from across the political spectrum. Our earnings before depreciation for the 2012/13 financial year was 4.1c / share. Without the estimated positive uplift attributed to the carbon price, our equivalent earnings before depreciation would have been just 1.1 cents / share.6

4 Mr Nathan Fabian, Chief Executive Officer, Investor Group on Climate Change, Committee Hansard, 26 November, 2013, p.9.

5 Mr Anthony Wood, Energy Program Director, Grattan Institute, Committee Hansard, 26 November, 2013, p.4.

6 Submission 34, Hepburn Wind

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4. Impact of Repeal on energy prices 4.1 The Coalition's main purpose for this policy package is to reduce utility bills and overall costs on households and business. In his second reading speech on the repeal bills, the Prime Minister was unambiguous in the reductions Australians can expect, using an average figure on overall costs but exact specifics for electricity and gas costs.

The first impact of this bill will be on households, whose overall costs will fall $550 a year on average. Thanks to this bill, household electricity bills will be $200 lower next financial year without the carbon tax. Household gas bills will be $70 lower next financial year without the carbon tax.1

4.2 There appears to be evidence to suggest the Coalition Government has overestimated the impact of removing the carbon price on household expenses.

4.3 In evidence before the committee the Mr Wood said,

…It means therefore that when you remove the carbon price at just over $24 a tonne of CO2 equivalent, the savings that will be generated whenever that occurs will be less than if they would have been than when the cost was first imposed. Secondly, the correct comparison of the removal of the carbon price would be against what would have happened otherwise; namely, if there had been a continuity of this legislation in place then the carbon price almost certainly would have gone down significantly once it moved to a market based mechanism.2

4.4 In its submission, ACOSS highlighted the increased network expenditure as a factor that would impact any reductions in electricity bills:

Based on currently available evidence, it remains unclear whether repealing the carbon tax will lead to a significant decrease in household living costs. ACOSS has been advocating for low income energy consumers in energy market reform processes for the past seven years. The drivers of energy price rises are much broader and more complex than the introduction of the carbon price alone including, for example, increased network expenditure.3

4.5 While industry group COzero noted that some businesses would not see any impact from repeal because of the length of hedging contracts entered into.

Electricity contracts, in particular, hedged contracts, have been entered into by Liable Entities and Counterparties until the end of the 2015 financial year. These contracts have an implied carbon price in them. Regardless of whether the Carbon Tax is removed, or not, these contracts will have to be

1 Hon Tony Abbott MP, Prime Minister, House of Representatives Hansard, 13 November 2013.

2 Mr Anthony Wood, Energy Program Director, Grattan Institute, Committee Hansard, 26 November, 2013, p.1.

3 Submission 10, ACOSS

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honored with a carbon component that will have to be either absorbed by Liable Entities, or passed on.4

4.6 In designing the Clean Energy Future Package, Labor was acutely aware of the impacts on industry, particularly emissions intensive, trade exposed industry and the need to smooth this over time. As such, the Jobs and Competitiveness Program was designed to provide the most emissions-intensive trade-exposed businesses with assistance to cover 94.5 per cent of industry average carbon costs in the first year of the carbon price and less emissions-intensive trade-exposed businesses with assistance to cover 66 per cent of industry average carbon costs. To encourage industry to cut pollution, assistance was forecast to be reduced by 1.3 per cent each year and reviewed regularly to ensure effectiveness.

4.7 In its submission, the Australian Industry Group praised the Jobs and Competitiveness Program as "of great importance", no doubt as it saw the most emissions-intensive trade-exposed businesses with an effective carbon price of $1.27 per tonne and less emissions emissions-intensive trade-exposed businesses with an effective carbon price of $7.82 per tonne.5 Relative to increases in distribution costs, repealing the carbon price will have a small impact on the power bills of Australia's most emissions-intensive trade-exposed businesses, which in 2013-14 rose to effective price of approximately $1.70 per tonne.

4.8 The Clean Energy Future Package also contained significant co-investment funding to encourage business to become more energy efficient and/or reduce carbon emissions. Since July 2011, the Clean Technology Program has seen over $246 million of government investment leverage over $500 million of private sector investment. Many of these projects were financed by industry on the basis of increasing costs over time from the carbon price mechanism. Removal of the carbon price reduces the savings per annum from energy efficiency measures, pushing out payback periods from investment.

4.9 Given the Prime Minister's penchant for absolute honesty in this space, Labor Senators await the outcome of research into changes in costs if the repeal bills pass.

4 Submission 16, COzero

5 Submission 26, Australian Industry Group

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5. Direct Action sets Australia up to fail on its commitment to addressing Climate Change 5.1 Labor is concerned that the Coalition Government has no intention of ensuring Australia meets our internationally committed target of a 5 per cent reduction on 2000 levels by 2020, let alone our maximum of 25 per cent.

5.2 Australia's climate policies must be capable of achieving Australia's maximum internationally committed targets of up to 25 per cent reductions by 2020. Notably a failure to demonstrate a credible plan weakens our ability to play a constructive role in the new agreement that will cover all major emitters from 2020. 1 Australia’s existing policies give certainty in this regard.

…Australia's carbon price and limit on emissions can achieve our 25 per cent target and stronger reductions through post-2020 decades. The key features of the existing carbon pricing legislation ensure that Australia can meet its targets and stronger post-2020 targets if it chooses to do so. 2

5.3 Australia’s existing carbon reduction policy suite has a greater capacity to meet our current and future targets because it features a legally binding cap on emissions.

These features are the ability to set legally binding annual caps on carbon emissions and for liable entities to access international carbon permits to comply with these caps. These features provide confidence that Australia's carbon policy framework is sufficiently robust to manage the risks and uncertainty of future emissions drivers and deliver emission reductions at reasonable cost. These features also allow significant flexibility. The government can choose to adjust Australians emissions trajectory through the caps or companies can choose within certain limits how best to fulfil their obligations, whether by reducing emissions or by purchasing domestic and international permits or a combination thereof. 3

5.4 Meanwhile, direct action has no commitment to targets beyond 2020 and there is uncertainty within the policy about how it can even achieve these 2020 targets.

The government is currently yet to demonstrate that its alternative policy can achieve Australia's minimum commitments, and all independent analysis to date indicates that emissions will continue to increase under its currently proposed framework. 4

1 Mr Erwin Jackson, Deputy Chief Executive Officer, The Climate Institute, Committee Hansard, 26 November, 2013, p.29.

2 Mr Erwin Jackson, Deputy Chief Executive Officer, The Climate Institute, Committee Hansard, 26 November, 2013, p.29.

3 Mr Erwin Jackson, Deputy Chief Executive Officer, The Climate Institute, Committee Hansard, 26 November, 2013, p.29.

4 Mr Erwin Jackson, Deputy Chief Executive Officer, The Climate Institute, Committee Hansard, 26 November, 2013, p.29.

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5.5 The Coalition Government’s lack of long term funding commitments for Direct Action further confirms Labor’s view that the Coalition Government has no long term commitment to meaningful action to address climate change. The Grattan Institute in evidence before the Committee highlighted how Direct Action can have no longevity as a policy without further significant budget appropriations.

My understanding from every conversation I have had with the senior representatives of the government is that direct action has been targeted directly to achieve the five per cent target by 2020; that is shorthand, obviously. Many have criticised whether it might even do that. But, just focusing on your question, there is fundamentally no reason why the Emissions Reduction Fund, which is the centrepiece of direct action, could not be expanded. But because it is funded on budget, which is by the very nature of the instrument different from an emissions trading scheme or a renewable energy target, it would require additional budget appropriations in future times to be able to achieve that outcome. 5

5.6 The source of funding for the Direct Action policy was raised as a concern by the Australian Council of Social Services. Its submission highlighted that there is no benefit for low income Australians from one year of reduced power prices if the Direct Action policy is funded by reducing programs on which these people rely. 6 Of course, programs that low income Australians rely upon are right in the Coalition's sights with moves already to scrap the School Kids Bonus and Low Income Superannuation Co-contribution.

5.7 A 2010 Auditor-General's report into the Administration of Climate Change Programs raises serious concerns about the effectiveness of a Direct Action policy.

The Emissions Reduction Fund is a grant/tender scheme similar in structure to several previously implemented in Australia. The 2010 ‘Administration of Climate Change Programs’ report of the Auditor-General evaluates the success of a range of programs aimed at reducing Australian greenhouse gas pollution.6 The assessed greenhouse gas pollution reduction policy that most closely resembles the ERF was the Greenhouse Gas Abatement Program (GGAP). The Auditor-General’s finding is that the actual abatement achieved by the GGAP program was substantially less than originally planned, with only 30 per cent of planned emissions abatement being achieved. This underperformance was partly due to delays in finalising funding agreements, but also because of the termination of 40 per cent of funded projects - largely due to organisations bidding in with unsustainably low quotes for pollution reduction, before abandoning projects when costs were higher than anticipated.7

5 Mr Anthony Wood, Energy Program Director, Grattan Institute, Committee Hansard, 26 November, 2013, p.1.

6 Submission 10, ACOSS

7 Submission 28, Australian Conservation Foundation

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5.8 While the OECD considers that capital subsidies, as per the Direct Action policy, were among the most expensive ways of reducing emissions.8

5.9 The CEO of the Clean Energy Finance Corporation, Mr Oliver Yates, in evidence to the Committee highlighted concerns with financing emissions reduction programs with grants rather than loans.

Our experience is that providing people with debt creates discipline and ensures that the person who is borrowing from the state uses that money carefully. Our own view is that, if you are given money for taking an action, you are less likely to be as cautious as you would be if you were borrowing the money to achieve that outcome.9

5.10 This evidence highlights the major concern that the Coalition is not serious about reducing Australia's carbon emissions. The Direct Action policy has no guarantees of funding and no guarantees of reducing emissions.

If it passes into law, the Clean Energy Act Repeal Bill will remove Australia’s legislated cap on pollution. Government has indicated the replacement Emissions Reduction Fund scheme will have no legislated cap on pollution, nor any mechanism to ensure that Australia’s pollution reduction targets are satisfied. Government has also committed to capping spending on the ERF scheme.10

5.11 With no guaranteed funding and no guaranteed emissions reductions, ClimateWorks Australia's submission notes that the current repeal bills leave Australia vulnerable to a shock in future years.

Any replacement legislation needs to both retain a 2050 target and provide a mechanism for enabling an achievable pathway to the 2050 target and adjusting the 2020 target to one that will not impose higher and unnecessary costs in the future.11

5.12 ClimateWorks Australia further argues that the current architecture of the Clean Energy Future legislation should be retained in order to avoid unnecessary cost and delay in establishing new architecture.

5.13 The Senate inquiry also made clear that the Coalition Government has no clear policy rationale or evidence base to support its Direct Action Policy. The policy is being developed in the absence of economic modelling. This was made clear by both officials from the Treasury and Environment Departments during hearings for this inquiry.

Senator Pratt: In terms of the bills that are in front of us today, part of that bill is to repeal the Clean Energy Finance Corporation, and, in the future,

8 OECD, Effective Carbon Prices, November 2013, www.oecd-ilibrary.org/environment/effective-carbonprices_9789264196964-en 9 Mr Oliver Yates, Chief Executive Officer, Clean Energy Finance Corporation, Committee Hansard, 26 November, 2013, p.60 10 Submission 28, Australian Conservation Foundation

11 Submission 13, ClimateWorks Australia

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we are supposed to look to an Emissions Reduction Fund and we are supposed to take it at face value that that fund is coming in the future. We have not had modelling done that enables us to compare the existing policy with the future policy. You are telling us that you have not been asked to do that modelling.

Mr Campbell (Treasury): We have not. That is not to say that work has not been undertaken or is proposed to be undertaken within the taskforce, but there is nothing today I can comment on.12

Senator Pratt: What is the policy rationale from Treasury regarding the abolishment of the CEFC and the carbon pricing bills overall?

Mr Haigh (Treasury): The Treasury's role with regard to the CEFC is to implement the government's policy to wind up the CEFC. We have responsibility for doing that, subject to the bill passing parliament. The government's position on the CEFC or the reason for its abolition is, as I understand it, the CEFC either crowds out possible private sector investment or takes risks that are not appropriate with taxpayers' money. 13

Senator Pratt: What is the evidence base to uphold that statement? I appreciate that is the government's position. Is there an evidence base from Treasury's point of view to substantiate that?

Mr Haigh (Treasury): We have not looked into an evidence base to support or review that suggestion. 14

Ms Broadbent (CEFC): I think we have got evidence that there has certainly been crowding in rather than crowding out, because new financial institutions have come to participate in the market, being encouraged by a government owned entity's participation. 15

Senator Pratt: What work is being done from a policy point of view to compare efficient outcomes between different policy platforms?

Dr de Brouwer (Environment): The government has undertaken, through a release of terms of reference and a green paper process, to go through what the Emissions Reduction Fund would look like and also within that

the various elements of Direct Action, which include other things like the million solar roofs, 20 million trees and those other policies. The other step that is involved in this is being clear about what the abatement challenge is. So the government has been very clear about its commitment to reduce

12 Mr Russ Campbell, General Manager, Macroeconomic Modelling Division, The Treasury, Committee Hansard, 26 November, 2013, p.61. 13 Mr David Haigh, General Manager, Infrastructure, Industry, Environment and Defence Division, The Treasury, Committee Hansard, 26 November, 2013, p.66. 14 Mr David Haigh, General Manager, Infrastructure, Industry, Environment and Defence

Division, The Treasury, Committee Hansard, 26 November, 2013, p.66. 15 Ms Jillian Broadbent, Chair, Clean Energy Finance Corporation, Committee Hansard, 26 November, 2013, p.66.

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Australia's domestic emissions by five per cent by 2020. It is really then understanding what the abatement challenge is, given where that goes, and setting out a very clear public process to go through a terms of reference, green paper and white paper process to draw that out in public. 16

Senator Pratt: About halfway through your statement, you talked about the submissions process around the Emissions Reduction Fund. Will any of that work compare the efficiency of an emissions reduction fund with an emissions trading scheme?

Dr de Brouwer: It is very hard, when the green paper has not been released, to talk about what is going to be in the green paper. 17

Senator Pratt: But it has not been covered in the terms of reference, though, has it?

Dr de Brouwer: I do not think that is explicitly in the terms of reference. I could go through the terms of reference if you wish. 18

Senator Pratt: Is there any work going on within government—I know it has been done in the past—to compare the cost of abatement under direct action with that provided for under the existing legislation that we are operating under?

Dr de Brouwer: The government has been very clear about its policy stance and policy priorities in this area. The abatement that is associated with the Emissions Reduction Fund will come out as that fund operates. It really depends, in the reverse auction process, what the bids are for abatement and the cost of that abatement. That is revealed through the auction process; it is not revealed in advance. The government has been clear that it wants to have an auction process that goes across all parts of the economy—that is in the terms of reference—and purchase the lowest cost abatement from that exercise. Those answers are revealed in the exercise of the auction in that market process. 19

Senator Pratt: Can you point the parliament to any information or evidence base that would enable us—in terms of being the ones who are asked to answer this question of whether or not to repeal—to make those comparisons?

Dr de Brouwer: We are going through a design process now and it is a properly designed process. So that will be the source of the material. 20

16 Dr Gordon De Brouwer, Secretary, Department of the Environment, Committee Hansard, 26 November, 2013, p.67. 17 Dr Gordon De Brouwer, Secretary, Department of the Environment, Committee Hansard, 26 November, 2013, p.67. 18 Dr Gordon De Brouwer, Secretary, Department of the Environment, Committee Hansard, 26

November, 2013, p.67. 19 Dr Gordon De Brouwer, Secretary, Department of the Environment, Committee Hansard, 26 November, 2013, p.67. 20 Dr Gordon De Brouwer, Secretary, Department of the Environment, Committee Hansard, 26

November, 2013, p.67.

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Senator Pratt: So, in other words, yes, the parliament is being asked to repeal these bills before that information is available to us.

Dr de Brouwer: I think you are asking me to give personal views about things, Senator, and I do not think that is appropriate. 21

5.14 Labor Senators note that Treasury has previously done extensive work examining emissions trading schemes but has done no work under this Government looking at Direct Action. Previous work done by Treasury supported emissions trading as the most efficient policy framework for Australia, over and above that of direct action policies.22

21 Dr Gordon De Brouwer, Secretary, Department of the Environment, Committee Hansard, 26 November, 2013, p.67. 22 Australia’s Low Pollution Future; The Economics of Climate Change Mitigation, Commonwealth of Australia, 2008

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6. The Coalition's policy removes access to international abatement 6.1 The repeal bills remove the opportunity for international abatement to be utilised as a part of Australia's carbon reduction policy suite. A number of witnesses provided evidence that the use of domestic only abatement will increase the cost of reducing emissions and make it more difficult to reach our emissions targets.

…any proposed policy framework in Australia, the one that is going to be the least costly and gives the greatest level of confidence that we have to achieve our targets is going to include international abatement. 1

…the difference between the $38 and $60 I mentioned is if you do not allow international permits. You get the lower price if you do allow international permits.2

There is no real scenario, unless you have effective carbon prices in the order of $65 to $75 a tonne by 2020, that you could achieve our targets all domestically. That is obviously a much higher cost than is currently accessible on the international market and we should be examining those opportunities too, at least as an insurance policy. The type of policy framework that the coalition or the government is proposing does not get us there; as it currently stands it is unlikely. 3

Because the cost of reducing emissions may be lower internationally, this is a significantly cheaper way to reduce emissions than if all the effort occurred domestically.4

6.2 Labor Senators are concerned that the Coalition is unnecessarily raising concerns about the efficacy of international abatement as a means of dismissing international action on climate change. Mr Jackson from the Climate Institute highlighted in evidence to the Committee that the Kyoto Protocol's clean development mechanism is supporting renewable energy investment and the international rules and markets have become more stringent, not less.5

6.3 Labor Senators believe Australia should participate in the international carbon market because one tonne of emissions has the same impact on climate change regardless of its country of origin and as such we need to support all countries in their efforts to move to lower their emissions. Further, international abatement unlocks an opportunity for Australia to reduce emissions at almost half the cost of doing so purely using domestic abatement.

1 Mr Erwin Jackson, Deputy Chief Executive Officer, The Climate Institute, Committee Hansard, 26 November, 2013, p.31.

2 Mr Tony Wood, Energy Director, Grattan Institute, Committee Hansard, 26 November 2013, p.6.

3 Mr Erwin Jackson, Deputy Chief Executive Officer, The Climate Institute, Committee Hansard, 26 November, 2013, p.31.

4 Submission 14, Investor Group on Climate Change

5 Mr Erwin Jackson, Deputy Chief Executive Officer, The Climate Institute, Committee Hansard, 26 November, 2013, p.30.

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7. Support for the Clean Energy Finance Corporation and Australian Renewable Energy Agency 7.1 Australia has not only priced carbon to reduce carbon pollution; we have been pro-active in setting up a policy suite including the Clean Energy Finance Corporation (CEFC), and Australian Renewable Energy Agency (ARENA). The CEFC facilitates comprehensive commercial loans and is set to fund emissions reductions at a negative cost (turn a profit) to government; its functions are to be replaced with the Emissions Reduction Fund that will consume billions from Consolidated Revenue. ARENA provides funding to improve the competitiveness of renewable energy technologies, assisting particularly at the difficult-to-fund points in the product life cycle.

7.2 In its first months of operation, the CEFC has been successful in providing loans to organisations. Over time, the CEFC has the capacity to make investments that would account for 50 per cent of the 5 per cent emissions reduction target by 2020 at a profit to the taxpayer of $2.40 per tonne.1

By working with private sector co-financiers, the CEFC multiplies the total amount of funding available for investment. Through investing $536 million of CEFC funds and $1.55 billion in private sector co-financing, the CEFC has facilitated over $2.2 billion in projects, delivered approximately 4 million tonnes of abatement, and achieved it at negative cost (i.e. net return or benefit) of $2.40 per tonne of abatement.2

7.3 Despite its successful operations, the repeal bills seek to abolish the Clean Energy Finance Corporation. Coalition Senators have been unable to see past their free market blinkers and appreciate the role the CEFC plays in facilitating investment in renewable energy that would otherwise be missed by normal commercial banks.

7.4 Many stakeholders gave evidence regarding the important work of the Clean Energy Finance Corporation and argue strongly that it should be retained.

7.5 Mr Nathan Fabian, Chief Executive Officer, of the Investor Group on Climate Change summarised the need for the CEFC in evidence:

The CEFC is one example of what are now 14 co-financing institutions around the world. These organisations are needed for five reasons. Firstly, governments cannot sufficiently finance low-carbon alternatives to meet a two-degree outcome and private capital is needed. Secondly, the low-carbon investment market is relatively young and so deal flow needs to be supported. Thirdly, capacity in the finance sector must be increased through the experience of financing investments. Fourthly, financial participants welcome investment opportunities presented in a new market by an objective third party, even more than by investment banks. Lastly, co-financing organisations can actually earn financial returns for governments, delivering abatement at negative costs—and we think this is appealing and

1 Mr Oliver Yates, Chief Executive Officer, Clean Energy Finance Corporation, Committee Hansard, 26 November, 2013, p.60

2 Submission 30, Clean Energy Finance Corporation

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makes sense to all parties. Given the government's infrastructure agenda, we think that dismissing co-financing as a useful policy instrument may be premature. 3

7.6 Mr Fabian went on to highlight that the role played by the CEFC is only possible because it also brings funds to the table.

Investors do not turn up for chat; they turn up when there is a deal to be done. If we know that the counterparty can make the investment more attractive, then we are interested. We are not just going to come along for a bit of a chat about what might occur or what investment might take place.4

7.7 In its submission, the renewable energy company Epuron noted the importance of the CEFC in facilitating finance for its renewable energy projects.

Our own experience in securing funding for projects underlines the key role of the CEFC. Epuron has secured ground-breaking commercial lending facilities with a major Australian bank for the solar power stations we operate in the Northern Territory. To achieve this both parties have been on a long journey because, despite the high quality nature of the projects and established track record of solar PV globally, such projects constitute a new asset class for the Australian banking community and the transaction sizes can be relatively small. Globally the market for financing of renewable energy markets, including solar and wind, is mature whereas the debt terms we have been able to achieve for our Australian projects are comparatively conservative.

The role of the CEFC is pivotal in enabling renewable energy projects, particularly solar PV, to reach financial close so that more are built and the market in Australia matures at a faster rate. In our own experience, the CEFC has not been providing concessional loan finance that undercuts the market but rather debt that fairly reflects project quality on market terms from a global perspective and in a way that does not crowd out the local banking community. In this way it appears that the CEFC has consistently exceeded its statutory benchmark lending rate.5

7.8 The Responsible Investment Association of Australia's submission highlighted that the CEFC is not a novel idea, with many other countries deploying similar financing models.

The CEFC co-investment model is a prudent and cost effective way to allocate limited public funds to leverage private investment to do the heavy lifting in the investment into a low carbon transition. A testament to this model is that global trend by many countries to put in place such public finance institutions to help catalyse investment flows into low carbon assets, including the UK Green Investment Bank, Germany’s KfW, China’s

3 Mr Nathan Fabian, Chief Executive Officer, Investor Group on Climate Change, Committee Hansard, 26 November, 2013, p.8.

4 Mr Nathan Fabian, Chief Executive Officer, Investor Group on Climate Change, Committee Hansard, 26 November, 2013, p.12.

5 Submission 7, Epuron

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Development Bank, the US Department of Environment’s Loan Program Office, the New York Green Bank, California Clean Energy Fund, European Investment Bank and many of the multilateral development banks such as the Asian Development Bank.6

7.9 While, Dr Frank Jotzo noted that the Clean Energy Finance Corporation would complement the Coalition's Direct Action Policy and support Australia's climate change policy irrespective of whether there is a carbon price. 7

7.10 The Australian Conservation Foundation noted that the strategic government support corrects the market failure known as the "Valley of Death" - the research phase after proof of concept but before commercial production - when companies often need continued funding to survive.8

6 Submission 22, Responsible Investment Association Australia

7 Submission 35, Dr Frank Jotzo

8 Submission 28, Australian Conservation Foundation

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8. Support for an independent Climate Change Authority 8.1 As climate change has been one of the most overtly political issues of the past decade, it is vital that the scientific targets and policy that underpins our response is conducted by an agency independent of Government. Subsuming the functions of the Climate Change Authority into the Department of Environment is likely to lead to less transparency in this highly political area of public policy. We believe that the risks are too great to abolish this independent institution.

8.2 Mr Erwin Jackson, Deputy Chief Executive Officer, The Climate Institute noted the political record of climate change policy and highlighted the need for climate policies based on evidence not the political agenda.

… the Climate Change Authority plays an essential role in informing that climate policy should be retained. Australia has a track record of highly politicised approaches to climate policy. This has produced policies that are often inefficient and continually readjusted, which in turn has resulted in significant business uncertainty, higher costs associated with investments and inadequate emission reductions. To achieve a sustained emission reduction consistent with our national interest, Australia needs climate policies that are based on a sound foundation of evidence rather than political agenda. 1

8.3 In his submission, Dr Frank Jotzo highlighted that the Climate Change Authority could still function under the Coalition's Direct Action policy.2

8.4 The submission from the Investor Group on Climate Change noted that the investment community values the analysis from the Climate Change Authority.

Regardless of the policy tools that Australian governments choose to implement, the CCA’s analysis assists investors to interpret the likely future emissions reductions trajectory for Australia and the scale of policy response that will be required.3

8.5 Investor Regnan noted the risks to Australian business from the abolition of the Climate Change Authority.

Abolition of the CCA increases the risk that Australian regulatory settings will move increasingly out-of-step with emissions reduction developments emerging at the international level in response to new science and global carbon budget commitments. The implications for Australian businesses would be to increasingly fall behind in carbon-competitiveness, risking large and disruptive value impacts in the future. We see implications particularly for carbon intensive companies with long-lived assets in the

1 Mr Erwin Jackson, Deputy Chief Executive Officer, The Climate Institute, Committee Hansard, 26 November, 2013, p.29.

2 Submission 35, Dr Frank Jotzo

3 Submission 14, Investor Group on Climate Change

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absence of regulatory settings which provide sufficient signalling to influence capital investment programs and technology choices.4

8.6 Finally, the submission from the Australian Conservation Foundation noted that the repeal bills do not reallocate the responsibility for consideration of renewable energy targets from the abolished Climate Change Authority.5 Labor Senators consider this oversight to be consistent with the short sighted approach to climate change policy taken by the Coalition Government.

Recommendation 1

8.7 Labor Senators consider that it is irresponsible to pass these Bills in the absence of a credible alternative emissions reduction policy.

Senator Anne Urquhart Senator Louise Pratt

4 Submission 29, Regnan

5 Submission 28, Australian Conservation Foundation

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Australian Greens' Dissenting Report

The Australian Greens do not support the repeal of the price on pollution or the abolition of the critically important institutions, the Clean Energy Finance Corporation (CEFC) and the Climate Change Authority (CCA).

The carbon tax repeal package repeals the Clean Energy Act 2011 and related Clean Energy Charges Acts to abolish the carbon pricing mechanism. This is in spite of the fact that the most effective, and the most affordable, way to reduce our emissions is to impose a price on pollution, a market mechanism, like the one contained in this Act.

When Tony Abbott and Greg Hunt say they have a mandate to remove the price on pollution, what they are actually saying is they have a mandate to do nothing about global warming as they have no alternative mechanisms beyond concepts. They are wrong.

Without a price on pollution Australia has no effective action to reduce emissions, transform the economy to low carbon, and build jobs in clean energy. By attempting to dismantle the price on pollution Tony Abbott is attempting to destroy the only effective policy to reduce the emissions which are driving extreme weather and droughts that loom over the next half century.

Australia is lagging behind our global counterparts who are implementing emission reduction schemes that are in keeping with what the scientists and economists recommend as the most effective way to tackle dangerous global warming.

The truth is that the Clean Energy Package is working. Australia’s emissions are being reduced in the covered sectors.

Under the Clean Energy Package, electricity sector emissions have reduced by 6.1% in the year to March. That is 12 million tonnes of C02 less than the previous year. The Australian Energy Market Operator has again downgraded expected demand for next year.

In the first six months of the scheme, emissions from electricity generation came down by 7% and the dirtiest brown coal generation in Victoria fell by 14%. The scheme only covers around 60% of our total emissions, and yet total emissions (including transport, agriculture and waste that are not covered by the scheme) have remained flat while our economy has grown. The decoupling of economic growth from emissions growth has now begun.

The scheme has been so much more successful than first envisioned that the default caps under the legislation for the first flexible pricing year in 2015 (which are based on this year's emissions levels) would mean a 15% reduction below 2000 levels instead of 5% as planned. Success is so much closer and easier than we first thought possible because of the effectiveness of the Clean Energy Package. The CEFC, the CCA, and the Land Sector Carbon and Biodiversity Board will be abolished by the repeal package. The Australian Greens oppose the abolition of these entities.

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The CCA was established to provide independent information on the carbon target Australia should adopt to do its fair share in reducing emissions globally consistent with constraining global warming to <2 degrees. It is recognised as providing key information to the investment and carbon pricing communities. It depoliticises the setting of greenhouse gas reduction targets and caps in the Australian emissions trading scheme.

Within its first year of operation, the CEFC has generated investments responsible for 3.9 million tonnes of CO2-equivalent abatement annually, which has been generated at a negative cost (net benefit) of approximately $2.40 per tonne. 179 proposals for projects are in the pipeline to an estimated value of $14.9 billion of investment in clean technologies. This investment will help drive the transition in Australia to a clean, low carbon economy. The role of the CEFC as a convenor, facilitator, and co-financier in the financial sector has been welcomed by the Investor Group on Climate Change. No evidence was provided to support the abolition of the CEFC.

In repealing the price on pollution, the Coalition intends to implement a policy called ‘Direct Action’. This policy is estimated to cost $3.2 billion, whereas the existing legislation creates $7.3 billion. That means the abolition of the Clean Energy Package and the implementation of ‘Direct Action’ would lead to a $10 billion deterioration in the budget position.

The cost under Direct Action will be higher, the risks greater, and this makeshift gap of a policy provides no investment certainty for either existing businesses or potential investors. With absolutely no detail on the policy developed, and a green and white paper process still to go, with a depleting and demoralising of departmental staff, the emissions reduction fund is highly unlikely to be ready to start auctions by June next year. Direct Action is simply designed to hide the government's climate denialism.

The price on pollution is not destroying the economy, in fact, it is providing certainty to business about the legislative framework in which it needs to operate in a world reducing greenhouse gas emissions. The price on pollution is reducing carbon emissions effectively. It is a crime against future generations for Tony Abbott to dismantle our best defence against the devastating impacts of global warming. The Australian Greens will do everything we can to defend the price on pollution and funding for clean renewable energy.

Australia is at a crossroads. The nation can either continue on a responsible path to do our fair share in constraining global warming to <2 degrees, or we can abandon that responsibility. We can condemn the nation to a ‘rust bucket’ economy or we can embrace the opportunities to transform to the new industries and services the world needs in a low carbon future. We can put a safe climate and a secure future for our children at the forefront of government policy or we can condemn them to climate

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chaos. The world is facing a climate emergency and the Greens will not allow the Abbott government to maintain its wilful blindness and tear down the legislative framework and institutions we have put in place.

Recommendation 1

That the bills not be passed.

Senator Christine Milne Leader of the Australian Greens

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Senator Xenophon Additional Comments 1.1 Climate change is one of the biggest challenges facing us as a nation, something of which our farmers in particular are all too aware. I believe we need to take meaningful and appropriate action to address the issue from both an environmental and economic point of view. The cost of not doing so in the next few years effectively will be much greater for generations to come.

1.2 Given the significance of this issue, the solution to it must be well-considered, effective and flexible. It must take into account, and meet, environmental, social and economic needs. I do not believe the current carbon pricing mechanism and associated measures do this.

1.3 I agree that the current mechanisms have created a poor economic outcome without even any reasonable environmental return for the economic impact involved. I did not support the former Government’s legislation to introduce these measures for these reasons, not because I do not believe we need to take action on climate change. For me, the debate on these issues is about finding the most cost-effective way to abate greenhouse gases.

1.4 As such, I agree with the comments of some submitters, who called for alternative measures to be in place before the existing scheme is repealed. I believe it is vital that the Government release draft legislation or detailed policy as soon as possible, both to demonstrate their commitment to this issue and to provide certainty for businesses and investors.

1.5 I am also extremely concerned, indeed shocked, that Treasury has not undertaken any modelling to determine whether it is more effective to spend money to reduce high-emissions activity or to spend money to increase cleaner generation activity. This is a significant gap in policy-making, and I strongly believe the Government should commission such modelling as a matter of priority.

Senator XENOPHON: In terms of abatement, you could spend money to reduce high-emissions activity or you could spend money to increase cleaner generation activity. I am not saying that is the only way you can do it, but those are two of the policy choices. Does Treasury consider that has a different effect on electricity pricing and on outcomes in terms of abatement?

Mr Campbell: We have not undertaken an analysis of the effectiveness of different programs for delivering abatement and its impact on prices.

Senator XENOPHON: It is pretty fundamental. Would you agree that it is potentially quite important as to whether you spend money to reduce high-emissions activity or whether you spend it to produce cleaner generation

activity. It could have quite significant impacts in terms of the merit order and, presumably, one would be more efficient than the other in terms of abatement, particularly in the context of a direct action scheme.

CHAIR: Senator Xenophon, aren't you seeking an opinion?

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Senator XENOPHON: No, I am asking whether there has been any modelling in respect of the two. Is this something that has been considered by Treasury?

Mr Campbell: No. We have not undertaken any work on that.

Senator XENOPHON: Is Treasury planning to undertake any work on that?

Mr Campbell: We will undertake work if we are requested to do so.

Senator XENOPHON: Are you in a position to say whether you would be advising government that it would be prudent to do so in terms of the most-effective use of taxpayers' funds in the context of the most-efficient way of achieving abatement?

Mr Campbell: We will make our usual comments to government through the processes around the consideration of the emissions reduction fund in the normal course. We would not be making a decision beyond that.

Senator XENOPHON: But you are familiar with the merit order argument? The merit order could be appreciably changed in the context of the electricity market and the effect on prices and also on abatement in the context of how you spend that money—whether it is by reducing high-emissions activity or by increasing cleaner generation activity.

Mr Campbell: I am aware of the issues that are at stake, yes.

Senator XENOPHON: I am shocked that Treasury has not undertaken any modelling in respect of this. I will leave it at that.1

1.6 I would also draw to the Government’s attention the modelling done by Frontier Economics in 2009, which was jointly commissioned by myself and then-Opposition Leader Malcolm Turnbull. The Frontier scheme can deliver deeper cuts to emissions at a lower cost than the CPRS and the Carbon Tax, because it avoids the enormous economic cost associated with the revenue churn of the former Government’s scheme. Frontier’s modelling has estimated that, for every dollar invested in abatement, there is a churn of five to six dollars through the economy. An intensity-based scheme, by contrast, sets emissions targets for industries, particularly the stationary energy sector, and avoids that level of churn and with it distortions and loss of economic activity.

1.7 While I support the committee’s comments in the majority report, I also believe it is important to highlight the fact that these matters are not straightforward and that the abolition of the current scheme may not lead directly to a reduction in costs. This is particularly true of the electricity market, where a number of factors are at play. I strongly suggest the Government refer to the matters raised by the Senate Select Committee on Electricity Prices, which need urgent attention.

1.8 The political debate regarding electricity prices over the past few years has been narrow and simplistic. To suggest or imply that the carbon tax is the primary

1 Mr Russ Campbell, General Manager, Macroeconomic Modelling Division, Department of the Treasury, Proof Committee Hansard, 26 November 2013, p. 69.

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cause of electricity price rises ignores the fact that charges for the use of electricity transmission and distribution accounts for about half of electricity bills. Currently, these charges are paid by retailers, who then pass them on to consumers. The doubling of retail tariffs over the past few years can be directly linked to the rise in network tariffs.

1.9 Network tariffs are regulated by the Australian Energy Regulator, which is part of the ACCC. The Rules governing how networks are regulated oblige the AER to provide network businesses with a guaranteed return on their investment, regardless of whether the investment was necessary or worthwhile and regardless of whether the investment is later found to be unnecessary or premature.

1.10 The changes that have been made to address this issue do not go far enough. The Australian Energy Regulator needs the ability to conduct detailed optimisation analyses of electricity networks’ asset bases to uncover instances of excessive or premature spending. To the extent this has occurred, network owners need to be penalised so that consumers are not forced to pay for investment decisions that were made with little genuine justification of need or due to electricity demand forecasts that were clearly inflated in defiance of the emerging evidence.

1.11 Finally, I am also concerned about the proposed abolition of the Clean Energy Finance Corporation. A vital part of any scheme to reduce carbon emissions is investment in clean energy projects. The CEFC is not, as the committee report suggests, ‘a private bank’2, but an agency with specific knowledge and expertise to support renewable energy projects. Utilised effectively, the CEFC’s $10 billion fund, allocated over five years, could make significant changes to Australia’s renewable energy sector and emerging technologies. It should not be discounted lightly, and I query whether any modelling has been done to suggest where that funding could be spent with equal effectiveness. I found the evidence of the Chair of the Clean Energy Finance Corporation, Ms Jillian Broadbent, to be compelling.

1.12 Ultimately, I am supportive of the Government’s move to abolish the current scheme, with the exception of the CEFC. However, I strongly encourage the Government to release a detailed policy document or draft legislation for Direct Action as a matter of urgency, and for the Government to consider the benefits of the Frontier Scheme, which the Coalition jointly commissioned with me in 2009.

Senator Nick Xenophon

2 Majority report, p. 31.

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Appendix 1

Submissions, tabled documents and answers to questions taken on notice Submissions 1. GE Australia & New Zealand 2. Mr Peter Lang 3. Tourism Accommodation Australia 4. Australian Youth Climate Coalition 5. Public Health Association of Australia 6. Origin

7. Epuron Pty Ltd 8. Australian Retailers Association 9. Professor John A Mathews 10. Australian Council of Social Service 11. Doctors for the Environment Australia 12. Pacific Calling Partnerships 13. ClimateWorks Australia 14. Investor Group on Climate Change 15. Sustainable Population Australia 16. COzero 17. Energy Supply Association of Australia, Energy Retailers Association of Australia, Energy Networks Association, Australian Pipeline Industry Association 18. Australian Forest Products Association 19. National Farmers Federation 20. Minerals Council of Australia 21. ACTU 22. Responsible Investment Association Australasia 23. Australian Aluminium Council 24. WWF-Australia 25. Cement Industry Federation and National Lime Association of Australia

26. The Australian Industry Group 27. Business Council of Australia 28. Australian Conservation Foundation 29. Regnan - Governance Research & Engagement 30. Clean Energy Finance Corporation 31. Australian Environment Foundation 32. Wentworth Group of Concerned Scientists 33. PacificHydro 34. Hepburn Wind 35. Dr Frank Jotzo 36 Climate Change Authority 37 Ms Barbara Thomas

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Tabled documents Opening statement by Ms Jillian Broadbent AO, Chair of the Board of the Clean Energy Finance Corporation, tabled by Ms Jillian Broadbent AO (at public hearing, 26 November 2013, Canberra)

Answers to questions taken on notice Department of Environment - Answer to a question taken on notice (from public hearing, 26 November 2013)

Master Builders Australia - Answers to questions taken on notice (from public hearing, 26 November 2013)

The Climate Institute - Answers to questions taken on notice (from public hearing, 26 November 2013)

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Appendix 2 Public hearings

Tuesday, 26 November 2013 - Canberra

Grattan Institute

Mr Anthony Wood, Energy Program Director

Investor Group on Climate Change

Mr Nathan Fabian, Chief Executive Officer

Master Builders Australia

Mr Peter Jones, Chief Economist

Refrigerants Australia

Dr Gregory R Picker, Executive Director

National Farmers' Federation

Mr Matthew Linnegar, Chief Executive Officer

Ms Deborah Kerr, Manager, Natural Resources Management

The Climate Institute

Mr Erwin Jackson, Deputy Chief Executive Officer

Australian Competition and Consumer Commission

Mr Scott Gregson, Group General Manager, Enforcement Group

Mr Brenton Philp, General Manager, Enforcement Operations ACT and National Projects

Energy Supply Association of Australia

Mr Kieran Donoghue, General Manager Policy

Mr Matthew Warren, Chief Executive Officer

Australian Industry Group

Dr Peter Burn, Director, Public Policy

Mr Tennant Reed, Principal National Adviser, Public Policy

Australian Food and Grocery Council

Mr Gary Dawson, Chief Executive Officer

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Department of the Environment

Dr Gordon de Brouwer, Secretary

Mr Brad Archer, First Assistant Secretary

Mr Simon Writer, Assistant Secretary

Mr Paul Locke, Director

Clean Energy Finance Corporation

Ms Jillian Broadbent, Chair

Mr Oliver Yates, Chief Executive Officer

Mr Andrew Powell, Chief Finance Officer

Ms Meg McDonald, Chief Operating Officer

Department of the Treasury

Mr David Haigh, General Manger, Infrastructure Industry, Environment and Defence Division

Mr Russ Campbell, General Manager, Macroeconomic Modelling Division

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PO Box 6100, Parliament House Canberra ACT 2600 Tel: 02 6277 3526 Fax: 02 6277 5818 Email: ec.sen@aph.gov.au Internet: www.aph.gov.au/senate_ec

THE SENATE

STANDING COMMITTEE ON ENVIRONMENT AND COMMUNICATIONS

INQUIRY INTO THE COPYRIGHT LEGISLATION AMENDMENT (FAIR GO FOR FAIR USE) BILL 2013

Background

On 27 June 2013, the Senate, on the recommendation of the Selection of Bills Committee, referred the Copyright Legislation Amendment (Fair Go for Fair Use) Bill 2013 (the bill) to the Senate Environment and Communications Legislation Committee (the committee) for inquiry and report by 3 October 2013.

The bill seeks to amend the Copyright Act 1986 (Copyright Act) to implement four reforms to Australian copyright law. Firstly, the bill would remove digital locks or technical protection measures that lock-up content and restrict visually impaired people from utilising audio editions of e-books or converting a text book into braille.

Secondly, the bill would create a 'safe harbour' to prevent Australian universities, schools, cultural institutions, content service providers and internet service providers from being sued for what others may do with material to which those organisations have allowed access.

Thirdly, the bill would remove geocodes that enforce different prices and conditions of use of content by Australian consumers, thus removing a barrier to Australians purchasing legitimate content from overseas.

Fourthly, the bill would introduce a 'fair use' exception in the Copyright Act to support digital innovation and promote access to collections in Australian cultural institutions. The fair use provisions would allow the 'fair use' of copyrighted work for purposes such as criticism, comment, news reporting, teaching, scholarship or research without that use being an infringement of copyright.

Conduct of the inquiry

The committee invited submissions by 31 August 2013. Details of the inquiry, the bill and associated documents are available on the committee's website at www.aph.gov.au/senate_ec. On account of the prorogation of the 43rd Parliament and dissolution of the House of Representatives on 5 August 2013, the committee did not hold any public hearings for this inquiry.

Summary of issues raised in submissions

The committee received 28 submissions to the inquiry (available on the committee's website). The majority of these opposed the bill. Some of the major issues raised in submissions included that:

• the bill would reduce incentives for makers of creative content and stifle innovation;

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• the bill would increase uncertainty and costs for copyright holders;

• the bill would be inconsistent with Australia’s obligations under the Berne Convention for the Protection of Literary and Artistic Works; and

• the need for the bill was not supported by evidence.

Many submitters also noted that the Australian Law Reform Commission (ALRC) is currently conducting an inquiry into copyright and the digital economy and that consideration of the bill should be delayed until the conclusion of that process. The ALRC is expected to deliver its final report on 30 November 2013.1

The Australian Communications Consumer Action Network (ACCAN) supported the bill on the basis it would provide technology neutral flexibility, improve access for people who are blind or vision-impaired, and address price discrimination achieved through geo-blocking.2 The Copyright Advisory Group—Schools (CAG Schools) of the Standing Council on School Education and Early Childhood was broadly supportive of the bill because:

…the introduction of a fair use provision is critically important to modern education. Fair use would remove the roadblocks currently impeding the use of digital technologies in Australian schools and make life easier for teachers.3

Committee comment

If the bill is reintroduced in the new parliament, the submissions received during this inquiry may be of assistance during any future inquiry into or debate on the bill.

Senator Doug Cameron Chair

1 Australian Law Reform Commission (ALRC), Copyright and the digital economy, available: http://www.alrc.gov.au/inquiries/copyright-and-digital-economy (accessed 4 September 2013). 2

Australian Communications Consumer Action Network (ACCAN), Submission 9. 3 Copyright Advisory Group—Schools (CAG Schools), Submission 28, p. 3. 78

The Senate

Finance and Public Administration

Legislation Committee

Commonwealth Electoral Amendment (Above the Line Voting) Bill 2013

December 2013

79

© Commonwealth of Australia 2013

ISBN 978-1-74229-927-3

Senate Finance and Public Administration Committee Secretariat:

Ms Lyn Beverley (Secretary)

Ms Margaret Cahill (Research Officer)

Ms Mel McLister (Administrative Officer)

The Senate PO Box 6100 Parliament House Canberra ACT 2600 Ph: 02 6277 3530 Fax: 02 6277 5809 E-mail: fpa.sen@aph.gov.au Internet: www.aph.gov.au/senate_fpa

Printed by the Senate Printing Unit, Parliament House, Canberra.

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Membership of the Committee

Members

Senator Cory Bernardi (Chair) LP, SA

Senator the Hon Kate Lundy (Deputy Chair) ALP, ACT Senator Bridget McKenzie NAT, VIC

Senator Lee Rhiannon AG, NSW

Senator Dean Smith LP, WA

Senator Mehmet Tillem ALP, VIC

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THE SENATE

STANDING COMMITTEE ON FINANCE AND PUBLIC ADMINISTRATION Legislation Committee

Report on the inquiry into the

Commonwealth Electoral Amendment (Above the Line Voting) Bill 2013

On 14 November 2013, the Senate, on the recommendation of the Selection of Bills Committee, referred the Commonwealth Electoral Amendment (Above the Line Voting) Bill 2013 (Bill) to the Senate Finance and Public Administration Legislation Committee (committee) for inquiry and report by the first sitting Wednesday in March 2014.

The Bill is a private senator's bill introduced into the Senate by Senator Nick Xenophon on 13 November 2013.1 The Bill provides for the amendment of the Commonwealth Electoral Act 1918 to reform the current system for electing Senators to the Australian Parliament by introducing an optional preferential system above and below the line. According to the Explanatory Memorandum the aim of the Bill is to 'make it easier for voters to determine their own preferences, rather than through the current system of group and independent voting tickets, and to increase transparency in the voting process'.2

Following consultation with Senator Xenophon, the committee has concluded that issues raised by the Bill would be best considered by the Joint Standing Committee on Electoral Matters. The role of the Joint Standing Committee on Electoral Matters is to inquire into and report on such matters relating to electoral laws and practices and their administration as may be referred to it by either House of the Parliament or a Minister. In addition, it has also been the practice of the committee to examine the conduct of each federal election and related matters since 1983. The committee resolved to make the following recommendations to the Senate.

Recommendation 1

The committee recommends that the Senate refer the Commonwealth Electoral Amendment (Above the Line Voting) Bill 2013 to the Joint Standing Committee on Electoral Matters for inquiry and report.

In addition, the committee considers that it would useful for the Joint Standing Committee on Electoral Matters to have the power to consider and use any evidence received by the committee.

1 Journals of the Senate, 13 November 2013, No. 2, p. 101.

2 Explanatory Memorandum, p. 2.

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Recommendation 2

The committee recommends that in conducting any inquiry, the Joint Standing Committee on Electoral Matters have the power to consider and use any evidence submitted to the Senate Finance and Public Administration Legislation Committee in relation to the Commonwealth Electoral Amendment (Above the Line Voting) Bill 2013.

Senator Cory Bernardi Chair

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The Senate

Finance and Public Administration

Legislation Committee

Schedule 2 of the Social Services and Other Legislation Amendment Bill 2013 [Provisions]

December 2013

85

© Commonwealth of Australia 2013

ISBN 978-1-74229-929-7

Senate Finance and Public Administration Committee Secretariat:

Ms Lyn Beverley (Secretary)

Ms Ann Palmer (Principal Research Officer)

Ms Mel McLister (Administrative Officer)

The Senate PO Box 6100 Parliament House Canberra ACT 2600 Ph: 02 6277 3530 Fax: 02 6277 5809 E-mail: fpa.sen@aph.gov.au Internet: www.aph.gov.au/senate_fpa

Printed by the Senate Printing Unit, Parliament House, Canberra.

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Membership of the Committee

Members

Senator Cory Bernardi (Chair) LP, SA

Senator the Hon Kate Lundy (Deputy Chair) ALP, ACT Senator Bridget McKenzie NAT, VIC

Senator Lee Rhiannon AG, NSW

Senator Dean Smith LP, WA

Senator Mehmet Tillem ALP, VIC

Substitute members

Senator Rachel Siewert, AG, WA to replace Senator Lee Rhiannon (from 9 December 2013)

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Table of Contents

Membership of the Committee ........................................................................ iii

List of Recommendations .................................................................................vii

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

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

Purpose of Schedule 2 of the Bill ........................................................................... 1

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

C

HAPTER 2 ........................................................................................................ 3

Background and committee view ............................................................................ 3

Background to Cape York Welfare Reform ........................................................... 3

Evaluation of Cape York Welfare Reform ............................................................. 6

Committee view ...................................................................................................... 8

Australian Greens Dissenting Report ............................................................. 11

APPENDIX 1 ..................................................................................................... 15

Submissions received by the Committee .............................................................. 15

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List of Recommendations

Recommendation 1

2.29 The committee recommends that the Senate pass the measure contained in Schedule 2 of the Bill.

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CHAPTER 1 Introduction

1.1 On 20 November 2013, the Social Services and Other Legislation Amendment Bill 2013 (Bill) was introduced into the House of Representatives by the Minister for Social Services (Minister), the Hon Kevin Andrews MP.1 The Bill was passed by the House of Representatives on 4 December 2013.2

1.2 On 5 December 2013, the Bill was introduced into the Senate.3 On the same day, the Senate referred Schedule 2 of the Bill - Continuing income management as part of the Cape York Welfare Reform - to the Senate Finance and Public Administration Legislation Committee (committee) for inquiry and report by 12 December 2013.4 In order to assist the parliament's timely consideration of the Bill, the committee decided to present its report on 11 December 2013.

Purpose of Schedule 2 of the Bill 1.3 Schedule 2 of the Bill seeks to amend the Social Security (Administration) Act 1999 to extend the operation of income management in Cape York for a further two years until the end of 2015.5 Income management is an element of the Cape York Welfare Reform trial.

1.4 The Explanatory Memorandum provides the following reason for the proposed amendment in Schedule 2 of the Bill:

The continuation of income management until the end of 2015 as a key element of the reforms will continue to assist in stabilising people's circumstances and fostering behavioural change, particularly in the areas of school attendance, parental responsibility and increasing individual responsibility.6

Conduct of the inquiry 1.5 Details of the inquiry, including links to the Bill and associated documents, were placed on the committee's website at www.aph.gov.au/senate_fpa.

1 Votes and Proceedings, No. 6, 20 November 2013, p.106.

2 Votes and Proceedings, No. 10, 4 December 2013, p. 164.

3 Journals of the Senate, No. 7, 5 December 2013, p. 258.

4 Journals of the Senate, No. 7, 5 December 2013, pp 245-246. Note: The provisions of Schedules 6 and 9 were referred to the Senate Education and Employment Legislation Committee and the remaining provisions were referred to the Senate Community Affairs Legislation Committee.

5 Explanatory Memorandum (EM), p. 1. See Item 1 of Schedule 2 of the Social Services and Other Legislation Amendment Bill 2013 (Bill).

6 EM, p. 1.

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1.6 The committee also directly contacted a number of relevant organisations and individuals to notify them of the inquiry and invite submissions by 9 December 2013. Submissions received by the committee are listed at Appendix 1.

1.7 The committee decided to prepare its report on the basis of submissions received and available information. The committee thanks those who assisted by providing submissions to the inquiry.

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CHAPTER 2

Background and committee view Background to Cape York Welfare Reform 2.1 In 2007 the Cape York Institute for Policy and Leadership (CYI) published the report From hand out to hand up, Volumes 1 and 2, which set out the policy design for Cape York Welfare Reform (CYWR). CYWR is a package of policy measures which aims to address welfare dependence and reverse the decline of social and economic conditions in Cape York Indigenous communities. The underlying policy principles of the design were:

• all welfare should be conditional;

• further government investment in capability building was needed;

• incentives needed to be fundamentally changed to encourage people to engage in the real economy. 1

2.2 Four communities - Mossman Gorge, Coen, Aurukun and Hope Vale - agreed to participate in a four year trial of the reforms which began in 2008. It is important to note that CYWR is a partnership between the CYI, the Australian Government and the Queensland Government.2

Family Responsibilities Commission

2.3 A key component of CYWR was the establishment of the Family Responsibilities Commission (FRC) by the Queensland Government as an independent statutory body.3 The FRC comprises a Commissioner, a Deputy Commissioner and Local Commissioners from each of the participating communities.

2.4 The FRC's website outlines its role and focus in the reform:

The purpose of the [FRC] is to support the restoration of socially responsible standards of behaviour and to assist community members to resume and maintain primary responsibility for the wellbeing of their community and the individuals and families within their community…

The FRC focuses on early intervention and the outcomes sought are clearly aligned with the goals of the wider criminal justice system - goals aimed at reducing drug addiction, violence, assorted crime, and child neglect in Indigenous communities. The FRC approach, however, is different to other

1 Department of Families, Housing, Community Services and Indigenous Affairs, Cape York Welfare Reform Evaluation, p. 67, available at: http://www.dss.gov.au/our-responsibilities/indigenous-australians/publications-articles/evaluation-research/cape-york-welfare-reform-cywr-evaluation-report-2012 (accessed 5 December 2013).

2 The Hon Kevin Andrews MP, Minister for Social Services, second reading speech, House Hansard, 20 November 2013, p. 9.

3 Cape York Welfare Reform Evaluation, p. 1.

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justice strategies in that its focus is socially orientated with conferencing, case management, and support for the community in nurturing, protecting and educating the future generation. The FRC methodology is aimed at being proactive and collaborative.4

2.5 The FRC applies to all community members - both Aboriginal and non-Aboriginal - who are welfare recipients or participating in Community Development Employment Projects and who reside in or have lived in the participating communities for three months since 1 July 2008.5

Triggers

2.6 There are four types of 'trigger events' which can result in a person being brought before the FRC:

• a person's child is absent from school for three full or part days in a school

term without a reasonable excuse, or the person's child of school age is not enrolled in school without a lawful excuse;

• a person is the subject of a child safety report;

• a person is convicted on an offence in the Magistrates Court;

• a person breaches his or her tenancy agreement. 6

2.7 If one of the four trigger events occurs, the FRC receives a notification about the breach. The FRC is then empowered to do a range of things:

[The FRC] might take no action if none is warranted. It might give the person a warning. It might recommend the person attend community support services to help them get their life back on track. It might order the person to attend those services.7

Support services

2.8 The FRC links individuals to relevant support services in their community which include:

• case managers to help children attend school;

• money management advisors; and

4 Family Responsibilities Commission, About the Commission, available at: http://www.frcq.org.au/?q=content/about-commission (accessed 6 December 2013).

5 Cape York Welfare Reform Evaluation, p. 71.

6 Cape York Welfare Reform Evaluation, p. 71.

7 The Hon Anna Bligh MP, Queensland Premier, second reading speech for the Family Responsibilities Commission Bill, Queensland Parliament Record of Proceedings (Hansard), 26 February 2008, p. 333.

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• counsellors for drug and alcohol addiction, family violence and mental health

issues.8

Income management

2.9 In the CYWR framework, income management over a person's welfare payments is intended as a last resort where other support has not resulted in an individual changing their behaviour.9

2.10 An income management order operates in the following way:

The FRC advises Centrelink how much of a person's welfare payment will be income managed. This is usually 60 or 75 per cent of a person's welfare payments, to be used for essentials such as food, clothing, medicine, rent, electricity and basic household goods. The money cannot be spent on alcohol, tobacco, pornography or gambling. Income management does not reduce the total amount of a person's payments from Centrelink, and the rest of their fortnightly entitlement is paid in the usual way.

The FRC orders income management by issuing an income management notice to Centrelink, which Centrelink must implement if the customer named in the notice receives a relevant income support payment. The FRC may also amend an income management notice to revoke the notice, extend the its duration or amend the percentage of fortnightly welfare payments that are income managed. In CYWR communities, individuals also have the choice to go onto income management voluntarily, if the FRC agrees.

The FRC can direct that the client be income managed for a period of from 3 months to 12 months, which is typical. The FRC may extend income management because:

• it has received further notices about the person

• the client has refused to engage with the FRC

• the client has failed to follow through on commitments agreed with the FRC

• the client has asked for the notice to be extended. 10

2.11 Individuals on income management are issued a 'BasicsCard' in respect of 60 to 75 per cent of their welfare payment. The BasicsCard can only be used for essential life expenses such as food, clothes and health items at a variety of approved stores and businesses.11

8 Department of Families, Housing, Community Services and Indigenous Affairs and KMPG, Implementation Review of the Family Responsibilities Commission: Final Report, September 2010, p. 12.

9 Cape York Welfare Reform Evaluation, p. 187.

10 Cape York Welfare Reform Evaluation, p. 73.

11 See Department of Human Services website, About the BasicsCard, available at: http://www.humanservices.gov.au/customer/enablers/centrelink/income-management/basicscard (accessed 9 December 2013).

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2.12 In introducing the legislation for the FRC into the Queensland Parliament, the then Queensland Premier highlighted the differences between CYWR and the Northern Territory Emergency Response (the Northern Territory Intervention):

[The CYWR] trial has a stronger emphasis on partnership, capacity building, local authority and service enhancement. Community ownership of the welfare reform trial is critical to its success.

The Cape York Institute and government officials have been working with each community for some time in designing the key features of the trial, particularly the [FRC] itself. Community participation in the trial will be formalised through each community's local Indigenous partnership agreement.12

2.13 The committee notes that funding for the FRC from the Queensland Government has only been extended until the end of 2014.13

Evaluation of Cape York Welfare Reform 2.14 An evaluation of CYWR was conducted by the Australian Government and publically released in January 2013. The evaluation notes that '[i]n the first three and a half years of the trial about half of the adult population in the four trial communities had direct contact with the FRC for breaching at least one of the behavioural obligations that act as triggers for referral to the FRC'.14

2.15 The evaluation found:

The FRC, operating in conjunction with a suite of support services…and opportunities…is encouraging and enabling many individuals and families to identify and start to address problems that affect their lives. The evaluation has found evidence of greater self-awareness about problems affecting individuals and families, and a greater preparedness to seek opportunities for supported self-help.15

Overall findings

2.16 The trial is designed to rebuild social norms in Cape York, starting with short to medium behaviour change which result in sustainable improvements over the longer term.16 The evaluation looked at the areas of progress in social change, education, social responsibility, housing, economic opportunity and restoring Indigenous authority.

12 The Hon Anna Bligh MP, Queensland Premier, second reading speech for the Family Responsibilities Commission Bill, Queensland Parliament Record of Proceedings (Hansard), 26 February 2008, p. 333.

13 Queensland Government, Submission 3, p. 1.

14 Cape York Welfare Reform Evaluation, p. 2.

15 Cape York Welfare Reform Evaluation, p. 5.

16 Cape York Welfare Reform Evaluation, p. 2.

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2.17 In the area of social change the evaluation noted that behavioural change sought has been at the foundational level to create the basis for further behavioural change:

There are signs that people are taking on greater personal responsibility and raising expectations, particularly in areas such as sending kids to school, caring for children and families and their needs, and accessing supported self-help measures to deal with problems.17

2.18 The evaluation also advised:

Residents of the communities report that, compared to three years ago, children are happier, more active and eating healthier food, and life is on the way up generally.18

2.19 A successful feature of the trial has been the:

[R]ebuilding of Indigenous authority to tackle antisocial behaviour through the local FRC Commissioners. Most community members and other stakeholders believe that the FRC has strengthened leadership, particularly through the Local Commissioner's listening, guiding and supporting role. The FRC conferencing process resonates with traditional Aboriginal dispute resolution practices and is consistent with restorative justice principles. An analysis of the social change survey data by social psychologists indicates that residents believe in the underlying logic of the trial - that the FRC can strengthen leadership and encourage people to take responsibility for their behaviour.19

2.20 The evaluation noted that more progress has been made changing behaviours around education and social responsibility and suggested:

[T]here is a natural sequence in which stabilising the social environment and improving educational attainment creates the preconditions for greater employment and business enterprise and transition to private home ownership.20

Income management findings

2.21 The evaluation provided the following information in relation to the extent of income management in CYWR:

By December 2011, 424 people (25% of the population aged 17 and over) had been placed on income management in the four communities at some point in the preceding 3½ years, for an average duration of 16.8 months. 93% were compulsory and 7% were voluntary orders.21

17 Cape York Welfare Reform Evaluation, p. 2.

18 Cape York Welfare Reform Evaluation, p. 5.

19 Cape York Welfare Reform Evaluation, p. 6.

20 Cape York Welfare Reform Evaluation, p. 3.

21 Cape York Welfare Reform Evaluation, p. 15.

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2.22 In summary, the evaluation made the following findings in relation to the operation of the income management scheme:

The evaluation has found that income management imposed by the FRC has been a successful intervention in ensuring that the needs of families and children are met…

The Cape York model of income management is far more targeted than the original [Northern Territory Emergency Response] model. The FRC seeks initially to counsel clients about their behaviour and refer them to support services, while income management is used as a means to reform behaviour if these initiatives do not work. Clients on income management are case managed and the FRC monitors their progress and can adjust or revoke income management orders as necessary. There is some evidence that income management assists in reducing subsequent breaches of the behavioural obligations that lead to FRC notices. In Hope Vale, Coen and Mossman Gorge, the average number of notices per quarter for an individual fell by about 10 percentage points after the individual was placed on income management.22

2.23 Specifically in relation to the BasicsCard, which is issued as part of the income management program, the evaluation found:

In the social change surveys, 78 per cent of respondents in the four communities reported that the BasicsCard made their life better, while 12 per cent thought that it made their life worse. Furthermore, across the four communities, 69 per cent agreed that if people cannot pay for rent and food because they spend their money on other things, then they should be put on the BasicsCard. There is some dissent about the BasicsCard, with common complaints being the inability to use it in some stores and the paternalistic nature of the intervention. Generally, however, the qualitative feedback in the social change surveys was very positive about the impact of the BasicsCard in assisting people to manage their money to meet their families' needs, as well as reducing the money spent on alcohol and drugs.23

Committee view 2.24 The committee notes this is not a new issue and this will be the third time income management has been extended since it started in 2008.24 The committee is also mindful that income management is a divisive issue.25

2.25 The committee understands there is no quick fix to the long-term challenges of Indigenous disadvantage in these communities. However, it notes advice in the

22 Cape York Welfare Reform Evaluation, p. 34.

23 Cape York Welfare Reform Evaluation, p. 34.

24 Income management was extended for 12 months from 1 January 2012 and 12 months from 1 January 2013. See A Biggs, L Buckmaster, C Ey and M Klapdor, Bills Digest: Social Services and Other Legislation Amendment Bill 2013, Digest No. 29, 2013-14, 10 December 2013, p. 14.

25 See, for example, St Vincent de Paul Society, Submission 2, pp 2-4.

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evaluation report that 'after only three years…the trial of welfare reform points to a level of progress that has rarely been evident in previous reform programs in Queensland's remote Indigenous communities.'26

2.26 The committee recognises that income management is a sanction of last resort in CYWR. In considering the extension of income management in the CYWR, the committee has referred to the findings of the evaluation that income management was a 'successful intervention in ensuring that the needs of families and children are met'.27 In particular, the committee is persuaded by support for the measure by CYWR participants, where 78 per cent of respondents in the four communities felt that the Basicscard (issued as part of income management) made their lives better.

2.27 The committee also acknowledges the support of the Queensland Government, one of the partners in CYWR, for the extension of income management:

Income management is a critical and valued component of the Family [Responsibilities] Commission and the broader welfare reform program. It is considered vital to changing behaviour and increasing social function in the communities.28

2.28 In the committee's view CYWR should be extended for a further two years in order to allow for further consolidation of the successes of the reform to date. Therefore, the committee supports Schedule 2 of the Bill.

Recommendation 1

2.29 The committee recommends that the Senate pass the measure contained in Schedule 2 of the Bill.

Senator Cory Bernardi

Chair

26 Cape York Welfare Reform Evaluation, p. 7.

27 Cape York Welfare Reform Evaluation, p. 34.

28 Queensland Government, Submission 3, p. 1.

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Australian Greens Dissenting Report The Australian Greens are very concerned at the very quick time frame of this inquiry, given the very short time of the inquiry, moving the reporting date forward has only made it more difficult for stakeholders to participate. The small number of submissions should not be taken as a sign that this issue is not highly contested.

The application of income management in Cape York is quite widespread. While income management is meant to be applied as a measure of last resort, 25% of those living in the welfare trial sites had been subject to it by December of 2011. And although an income management order is meant to be between 3 to 12 months, the average length of time on the Basics Card is 16.8 months.1 Clearly the income management orders are applied frequently and often extended beyond the original time period.

While the Australian Government argues that income management has been instrumental in improving 'school attendance, care and protection of children and community safety',2 there has not yet been any objective analysis of income management in Cape York that has shown that it is has delivered these outcomes.

The continued application of a highly coercive program such as income management needs to be justified before the Australian Greens would support extending it in any guise. This justification has not been provided through the committee inquiry process.

The majority committee report points to subjective measures of wellbeing, obtained by surveying the community attitude towards Income Management as evidence of the program's success.3 However, it is the view of the Australian Greens that this should be supported by empirical evidence as perceptions are very different to real outcomes.

The major source of information about income management in Cape York is the evaluation report commissioned by the Australian Government.4 This report is unable to demonstrate conclusively that income management in Cape York had met its stated aims.

Only three of the four communities demonstrated a reduction in the number of times that people were reported to the Family Relationship Council, and only then was there a 10% reduction in reports per person.5 The evaluation report goes on to say that,

The reduction in breaches may not be a function of income management alone, as it is possible that the fact of being repeatedly brought before the FRC conferences encourages individuals to comply.6

1 Australian Government, Cape York welfare reform evaluation, FaHCSIA, 2013, p 2.

2 Explanatory Memorandum, Social Security and Other Legislation Amendment Bill 2013, p. 5.

3 Australian Government, Cape York welfare reform evaluation, FaHCSIA, 2013.

4 Ibid., p. 34.

5 Ibid.

6 Ibid.

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The evaluation found that there had been improvements in areas such as school attendance and reductions in crime.7 However, income management is just one of a number of measures that have been implemented by the Cape York Welfare Reform Trial, which contributes to these changes.

Furthermore, two of the report’s authors, Ilan Katz and Margaret Raven, have noted in the Indigenous Law Bulletin that it is difficult to draw conclusions from this given that ‘many other Indigenous communities in Queensland had also shown improvements’.8

This is reflected in the submission from St Vincent de Paul Society, states,

There seems to be limited evidence to suggest that these positive outcomes are a direct result of compulsory income management, as opposed to a range of new social services being rolled out in Cape York... there is no particular reason to think that income management is the sole driver of the positive changes, with so many programs operating simultaneously.9

The majority report, 'acknowledges the support of the Queensland Government, one of the partners in CYWR, for the extension of income management'10 but fails to acknowledge that the Queensland Government originally withdrew funding for the programs in March 2013, with Queensland Aboriginal and Torres Strait Islander Affairs Minister, Glen Elmes stating,

It is an extraordinary amount of money and the fear I have is that a very large amount of money is going into those four communities … The other Indigenous communities—not only in Cape York—but places like Woorabinda and Cherbourg and other parts of the state are missing out on what should be their share.11

Although the Queensland Government has subsequently agreed to extended the trial until the end of 2014 (one year less than this Bill seeks to extend the trial for), it is clear that the Queensland Government is not unambiguously supportive of the program.

The evaluation report also notes that there is some community dissent about income management and the Basics Card, including concern about the 'inability to use it in some stores and the paternalistic nature of the intervention,'12 which echoes the

7 Ibid., pp. 3-5.

8 I Katz and M Raven, ‘Evaluation of the Cape York Welfare Reform Trial’, Indigenous Law Bulletin, 8(7), July 2013, p.19.

9 St Vincent de Paul Society, Submission 2, p. 3.

10 Finance and Public Administration Legislative Committee, Majority Report on Social Services and Other Legislation Amendment Bill, 2013, Section 2.26.

11 J Rawlins and S Kim, ‘Government cuts funding to Cape York welfare trial’, ABC News, 27 March 2013.

12 Australian Government, Cape York welfare reform evaluation, FaHCSIA, 2013, p. 34.

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concern that have been associated other forms of income management such as the NT Trials and the Place-Based Trials.

The evaluation report of the Northern Territory 'New Income Management' Trials found the program to be disempowering, while being unable to pinpoint any measurable improvements in community wellbeing or personal responsibility.13

Similarly, the Parliamentary Joint Committee on Human Rights included the 'new income management trials' in their assessment of the Stronger Futures regime. Their report found that there was evidence of ‘equally significant adverse aspects' to counter any benefits of the regime. The Committee also noted the fact that income management intrudes on personal freedom and autonomy.14

While there are differences between the Northern Territory and Queensland application of income management, the negative impact on human rights and personal dignity is common to both and should not be dismissed.

There have also been no assessments to date about how income management has changed purchasing habits in Cape York. However, again looking to other assessments from the Northern Territory for insight, the Menzies Institute research found virtually no change to tobacco or fresh food purchases under income management,15 while a study conducted by the Equality Rights Alliance of more than 180 women with direct experience of Income Management found that 85% had not changed what they buy and 74% felt discriminated against.16

On the weight of the evidence, the Australian Greens believe that income management is a failed and expensive policy that the Government is persisting with in the absence of any real justification. There are a number of other programs, which are not coercive in nature, such as Centrepay that can be used to help people manage their money better.

The Greens support a direct investment in programs and communities that address the underlying causes of disadvantage people are facing rather than income management which is expensive to implement.

The money being spent on income management around Australia would be better invested directly into communities in order to provide specialist, direct programs to address things like financial management, education, better access to fresh food, a reduction in alcohol and drug abuse and better support for parents and people looking for work.

13 Rob Bray et al, (Social Policy Research Centre, UNSW, Australian National University and Australian Institute of Family Studies), Evaluating New Income Management in the Northern Territory: First Evaluation Report, 2012, pp. xviii-xix.

14 Joint Standing Committee on Human Rights, Stronger Futures in the Northern Territory Act 2012 and related legislation, 2013, section 1.223.

15 Brimblecombe, J et.al. Impact of Income Management on Store Sales in the Northern Territory, Medical Journal Australia, 192(10), 2010, p.549 - 554.

16 Equality Rights Alliance, Women’s Experience of Income Management in the Northern Territory, 2011, p.22.

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Recommendation 1

The Australian Greens recommend that the Senate not pass the measure contained in Schedule 2 of the Social Security and other Legislation Amendment Bill 2013.

Recommendation 2

That the funding associated with Schedule 2 be directed towards other programs of support that are not coercive in nature.

Senator Rachel Siewert

Australian Greens

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APPENDIX 1

Submissions received by the Committee

1 Monash University 2 St Vincent de Paul Society 3 Queensland Government

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The Senate

Foreign Affairs, Defence and Trade

Legislation Committee

African Development Bank Bill 2013 [Provisions]

August 2013

109

 Commonwealth of Australia 2013

ISBN 978-1-74229-905-1

Printed by the Senate Printing Unit, Parliament House, Canberra

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Members of the committee

Core members Senator the Hon Ursula Stephens, ALP, NSW (Chair) Senator Alan Eggleston, LP, WA (Deputy Chair) Senator Mark Bishop, ALP, WA Senator David Fawcett, LP, SA Senator Anne McEwen, ALP, SA Senator Lee Rhiannon, AG, NSW (substituted for Senator Ludlum from 28.06.2013) Senator Scott Ludlam, AG, WA (until 28.06.2013)

Secretariat Dr Kathleen Dermody, Committee Secretary Mr Owen Griffiths, Principal Research Officer Miss Jedidiah Reardon, Senior Research Officer Ms Penny Bear, Research Officer Ms Jo-Anne Holmes, Administrative Officer

Senate Foreign Affairs, Defence and Trade Committee Department of the Senate PO Box 6100 Parliament House Canberra ACT 2600 Australia

Phone: + 61 2 6277 3535 Fax: + 61 2 6277 5818 Email: fadt.sen@aph.gov.au Internet: www.aph.gov.au/senate_fadt

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Table of Content

Members of the committee ............................................................................... iii

Abbreviations .................................................................................................... vii

Chapter 1

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

Referral ................................................................................................................... 1

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

Recent research .................................................................................................... 2

Background to the African Development Bank Group .......................................... 3

Scope of inquiry ..................................................................................................... 5

Acknowledgements ................................................................................................ 6

Chapter 2

Purpose and provisions of the bill ........................................................................... 7

Authority to make payments to the African Development Bank ........................ 7

Authority to make payments to the African Development Fund ........................ 8

Authority to issue securities ................................................................................ 8

Executive power .................................................................................................. 8

Making rules ........................................................................................................ 8

Statement of compatibility with Human Rights .................................................. 9

Chapter 3

Membership—costs ................................................................................................ 11

Preliminary funding .............................................................................................. 11

Membership of the African Development Bank Group ....................................... 11

Membership of the AfDB .................................................................................. 12

Membership of the African Development Fund................................................ 14

Additional resources .......................................................................................... 17

Africa and Australia's overseas development assistance ...................................... 18

Delivering assistance in Africa .......................................................................... 18

Advantages in membership of the Bank ............................................................... 19

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Reputation—local knowledge and expertise ..................................................... 19

Synergies and complementarities ...................................................................... 21

Cost effectiveness .............................................................................................. 24

Promoting Australian interests .......................................................................... 25

Conclusion ............................................................................................................ 28

Chapter 4

Governance.............................................................................................................. 31

Organisational structure ........................................................................................ 31

History ............................................................................................................... 32

Internal mechanisms for good governance ........................................................... 33

Transparency and accountability ....................................................................... 34

Fraud and anti-corruption .................................................................................. 35

External reviews and assessments ........................................................................ 37

UK Department for International Development ................................................ 37

Australian Multilateral Assessment ................................................................... 37

Multilateral Organisation Performance Assessment Network (MOPAN) ........ 39

Continuous improvement .................................................................................. 40

Shareholders' transparency and accountability mechanisms ................................ 41

Australia's role ................................................................................................... 42

Conclusion ............................................................................................................ 45

Coalition senators’ dissenting report Coalition senators do not support the Bill ............................................................ 47

Additional comments Senator Lee Rhiannon for the Australian Greens ................................................. 49

Appendix 1 Public submissions ............................................................................................... 55

Appendix 2 Answers from AusAID to written questions on notice ........................................ 57

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Abbreviations

ADB Asian Development Bank

ADF (sometimes AfDF) or the Fund African Development Fund

AfDB or the Bank African Development Bank

AMA Australian Multilateral Assessment

AfDB Group or

the Group

African Development Bank Group

ATNIA Australian Treaty National Interest Analysis

AusAID Australian Agency for International Development

DFID Department for International Development (United Kingdom)

EBRD The European Bank for Reconstruction and Development

EITI Extractive Industries Transparency Initiative

GCI general capital increase

G20 Group of Twenty countries

IMF International Monetary Fund

iRAP International Road Assessment Programme

IRM Independent Review Mechanism

MDBs Multilateral Development Banks

MOPAN Multilateral Organisation Performance Assessment Network

NGO Non-government organisation

ODA Overseas development assistance

OECD Organisation for Economic Co-operation and Development

OPEV Operations Evaluation Department

SDRs Special Drawing Rights

UK United Kingdom

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US United States of America

USD Unites States dollar

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Chapter 1 Introduction

1.1 On 30 May 2013, the Hon Mr Bernie Ripoll, Parliamentary Secretary to the Treasurer and Parliamentary Secretary for Small Business, introduced the African Development Bank Bill 2013 (the bill) into the House of Representatives.1 That same day, on the recommendation of the Selection Committee, the bill was referred to the Joint Standing Committee on Foreign Affairs, Defence and Trade.2 This committee was to review the commitments Australia would enter into on becoming a member of the African Development Bank Group (AfDB Group or the Group).3

Referral 1.2 On 18 June 2013, the Senate referred the provisions of the bill to the Senate Foreign Affairs, Defence and Trade Legislation Committee (the committee) for inquiry and report by 20 August 2013.4 In undertaking the inquiry, the Senate asked the committee to examine in particular the additional financial and human resources that the Commonwealth Treasury and the Australian Agency for International Development (AusAID) would require to support Australia's engagement with the AfDB Group. The committee was also to consider the effectiveness of the Group's governance structures.5

1.3 The AfDB Group comprises three distinct entities: the African Development Bank (AfDB or the Bank), which is the parent institution; and two affiliates, the African Development Fund (ADF or the Fund) founded in 1973 and the Nigerian Trust Fund, established in 1976.6 For the purposes of this inquiry, which is concerned with Australia's proposed membership of the Group, the committee's consideration is limited to the AfDB and ADF.

Conduct of inquiry 1.4 The committee advertised the inquiry on its website and wrote to relevant ministers and departments calling for written submissions. It also contacted a number of other organisations, including Transparency International Australia and the Australian Council for International Development, and relevant businesses and

1 House of Representatives Hansard, 30 May 2013, p. 4528.

2 House of Representatives Hansard, 30 May 2013, p. 4610.

3 Selection Committee, Report No. 82, Report relating to the consideration of bills introduced 27 to 30 May 2013, in House of Representatives Hansard, 30 May 2013, p. 4610.

4 Journals of the Senate, No. 148, 18 June 2013, pp. 4048-4049.

5 Selection of Bills Committee, Report No. 6 of 2013, 18 June 2013, Appendix 1.

6 African Development Bank Group, AfDB in Brief, May 2013, http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/ AfDB%20in%20Brief.pdf (accessed 20 June 2013).

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academic institutions inviting them to make submissions to the inquiry. The committee received 5 submissions, which are listed at Appendix 1.

1.5 On 5 August 2013, the 43rd Parliament was prorogued. Senate committees, however, are authorised to continue to meet and transact business, such as conduct hearings and make reports, after a prorogation if they choose to do so. Reports which are due by a particular date under an order of the Senate should be presented to the President by the due date.7 The committee decided to proceed with its deliberations on

the legislation and to table a report.

Recent research

1.6 A number of recent reviews and inquiries have made findings relating to Australia becoming a member of the AfDB Group. They include a 2011 independent review of Australia's aid effectiveness, AusAID's 2012 assessment of multilateral organisations, an Australian Treaty National Interest Analysis and an inquiry by the Joint Standing Committee on Treaties. Based on their work, a substantial body of current views and evidence is now available on this matter, all of which advocated Australia joining the AfDB Group. Submissions to this inquiry likewise supported this measure.

1.7 Overseas agencies have also recently undertaken a number of performance evaluations of the Bank, including a review by the United Kingdom's Department for International Development and an assessment by the Multilateral Organisation Performance Assessment Network (MOPAN).8 The Bank itself undertakes appraisals including its Annual Development Effectiveness Review. In considering Australia's proposed membership of the AfDB Group, the committee has drawn significantly from these various sources.

1.8 In response to the committee's request for additional information, Treasury and AusAID provided answers, which, in effect, gave added weight to the case for Australia becoming a member of the AfDB Group.9

1.9 In light of the substance and general thrust of the evidence, the committee decided that there was no need for a public hearing: that there was more than ample evidence available for the committee's deliberation and for members to make informed recommendations. Thus, this report takes account of the evidence and views gathered since the independent review of Australia's aid effectiveness highlighted the benefits of Australia becoming a member of the Group.

7 See Harry Evans and Rosemary Laing, ed., Odgers' Australian Senate Practice, 13th ed., Department of the Senate 2012, pp. 189, 190, 332 and 487.

8 MOPAN is made up of 16 donor countries—Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, The Netherlands, Norway, Republic of Korea, Spain, Sweden, Switzerland and the United Kingdom. Each year MOPAN assesses several multilateral organisations for their organisational effectiveness. See Multilateral Organisation Performance Assessment Network, Assessment of Organisational Effectiveness and Reporting on Development Results, African Development Bank (AfDB), Volume 1, December 2012, p. i.

9 See Appendix 2 of this report.

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Background to the African Development Bank Group 1.10 Established in 1964, the AfDB is the leading development financial institution in Africa.10 The AfDB is a regional development bank belonging to a group of institutions known collectively as multilateral development banks (MDBs). This group includes the World Bank Group and three other regional development banks— the Asian Development Bank; the European Bank for Reconstruction and Development (EBRD); and the Inter-American Development Bank Group. MDBs provide 'financial support and professional advice for economic and social development activities in developing countries'.11 Each bank draws its membership from both borrowing developing countries and developed donor countries and its broad membership extends to countries beyond the bank's particular region. Although the banks have similar mandates, each one has its own independent legal and operational status.12

1.11 The AfDB was modelled in many respects on the World Bank but is focused entirely on development in Africa.13 The Bank provides concessional and non-concessional loans, grants and technical assistance to clients in regional member countries. The AfDB has a distinctly African character—its headquarters are in Africa, its investment operations are exclusively in Africa and the Bank's President is always African.14

1.12 Initially, only independent African countries were eligible to be shareholders in the AfDB but in 1982 the Bank opened its capital to non-African countries.15

10 African Development Bank Group, www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/Integrity%20Anti- Corruption.pdf (accessed 20 June 2013) and AfDB in Brief, May 2013, http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/ AfDB%20in%20Brief.pdf (accessed 20 June 2013).

11 World Bank website, 'About Us—Affiliates', http://web.worldbank.org/WBSITE/EXTERNAL/EXTABOUTUS/0,,contentMDK:20040612~ menuPK:41694~pagePK:43912~piPK:44037~theSitePK:29708,00.html (accessed 19 June 2013) and Commonwealth of Australia, Independent Review of Aid Effectiveness, April 2011, p. 333.

12 World Bank website, 'About Us—Affiliates', http://web.worldbank.org/WBSITE/EXTERNAL/EXTABOUTUS/0,,contentMDK:20040612~ menuPK:41694~pagePK:43912~piPK:44037~theSitePK:29708,00.html (accessed 19 June 2013) and Commonwealth of Australia, Independent Review of Aid Effectiveness, April 2011, p. 333.

13 See for example, House of Commons, International Development Committee, DFID and the African Development Bank, Seventh Report of Session 2007-08, Volume 1, 8 May 2008, p. 5.

14 African Development Bank Group, AfDB in Brief, May 2013, p. 9, http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/ AfDB%20in%20Brief.pdf (accessed 20 June 2013).

15 African Development Bank, AfDB in Brief, May 2013, p. 7, http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/ AfDB%20in%20Brief.pdf (accessed 20 June 2013).

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Currently, the Bank is owned and financed by 78 member countries, comprising 54 African countries (regional member countries) and 24 non-African countries (non-regional member countries).16 As at June 2013, Libya, Australia and Turkey were in the final stages toward membership.17 Australia must first become a State Participant in the ADF before it is eligible to become a member of the AfDB.

1.13 Over half of the non-regional members belong to the Group of Twenty (G20) countries and three quarters are members of the Organisation for Economic Co-operation and Development (OECD), including major economies such as France, Germany, Japan, the UK and the US. Australia is one of the few major OECD donors and one of only two developed G20 members (with Russia), that is not a member of the Bank.18 Mr Robin Davies, Associate Director of the Development Policy Centre,

Australian National University (ANU), noted that Australia 'is quite conspicuous by its absence from the AfDB membership'.19

1.14 In May 2012, the Minister for Foreign Affairs, Senator the Hon Bob Carr, announced that Australia would pursue membership of the African Development Bank, which would signal 'Australia's commitment as a long-term development partner to Africa'.20 In July 2012, the Treasurer and Minister for Foreign Affairs restated the government's intention to pursue Australian membership of the AfDB and ADF 'to support Australia's efforts to overcome poverty and achieve the Millennium Development Goals in Africa'.21 They noted that:

16 African Development Bank Group, Annual Report 2012, p. v. South Sudan very recently became the latest member. See African Development Bank Group, 'Member countries', http://www.afdb.org/en/about-us/members/ (accessed 9 August 2013). The non-regional member countries are: Argentina, Austria, Belgium, Brazil, Canada, China, Denmark, Finland, France, Germany, India, Italy, Japan, Kuwait, The Netherlands, Norway, Portugal, Saudi Arabia, South Korea, Spain, Sweden, Switzerland, United Kingdom and United States of America. The United Arab Emirates is a member of the ADF only. See also, AusAID, Australian Multilateral Assessment, March 2012, p. 55 and Multilateral Organisation Performance Assessment Network, Assessment of Organisational Effectiveness and Reporting on Development Results, African Development Bank (AfDB), Volume 1, December 2012, p. 2.

17 President Donald Kaberuka, Opening remarks, Opening Session of the Second ADF 13 Replenishment Meeting, 12 June 2013, http://www.afdb.org/en/news-and- events/article/opening-session-of-the-second-adf-13-replenishment-meeting-opening-remarks- by-the-afdb-president-donald-kaberuka-12025/ (accessed 18 July 2013).

18 The Treasury and AusAID, Submission 2, p. 2 and the Development Policy Centre, Australian National University, Submission 5, p. 14.

19 Submission 5, p. 14.

20 Minister for Foreign Affairs, Senator the Hon Bob Carr, '2012-13 International Development Assistance Budget', Media release, 8 May 2012.

21 Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP and the Minister for Foreign Affairs, Senator the Hon Bob Carr, 'Australia to pursue membership of the African Development Bank to help overcome poverty', Joint media release, 17 July 2012, http://foreignminister.gov.au/releases/2012/bc_mr_120717b.html (accessed 16 July 2013).

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…the Bank is already a valued partner in Australia's increasing aid program in Africa and formal membership would demonstrate Australia's intent to remain a long-term partner in Africa's development.22

1.15 The Australian Government proposes to sign and ratify the Agreement Establishing the African Development Fund as amended and the Agreement Establishing the African Development Bank as amended. The Australian Treaty National Interest Analysis (ATNIA 23) noted:

While the relevant provisions suggest, on the face of it, that accession alone would meet the requirements of the AfDB Agreement, firm advice to Treasury from the African Development Bank (AfDB) is that it expects Australia to sign and ratify both agreements.23

1.16 According to the ATNIA 23, Australia would take the following relevant actions:

 lodge a letter with the AfDB Group indicating Australia's intention to become a party to the ADF and AfDB Agreements and outlining the size of membership contributions that Australia would make;

 sign the ADF and AfDB Agreements after negotiations with the AfDB Group

and the Terms of Membership have been approved by the Board of Governors; and

 following the passage of necessary legislation, lodge instruments of

ratification for the ADF and AfDB Agreements, which the government intends to do between 1 July 2014 and 30 June 2015.24

1.17 The Treasury and AusAID informed the committee that in May 2013 Australia submitted a Formal Declaration of Intent to join the Bank in 2014-15, subject to passage of domestic legislation enabling Australia to become a Group member.

Scope of inquiry 1.18 The committee is inquiring into this enabling legislation, which prescribes the conditions under which Australia's initial and future contributions to the AfDB are made. A Treasury representative told the Joint Standing Committee on Treaties that the legislation would be 'a fairly simple piece of legislation' that would ratify the joining process for both the Bank and the Fund and provide the appropriation to buy the shares in the Bank.25

22 Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP and the Minister for Foreign Affairs, Senator the Hon Bob Carr, 'Australia to pursue membership of the African Development Bank to help overcome poverty', Joint media release, 17 July 2012, http://foreignminister.gov.au/releases/2012/bc_mr_120717b.html (accessed 16 July 2013).

23 Australian Treaty National Interest Analysis [2012] ATNIA 23, paragraphs 1 and 2.

24 Australian Treaty National Interest Analysis [2012] ATNIA 23, paragraphs 3 and 4.

25 Joint Standing Committee on Treaties, Committee Hansard, 26 November 2012, p. 4.

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1.19 In this report, the committee focuses on the human resource and financial investments that Australia must make to become a member of the Bank and whether, in light of Australia's overseas development assistance policy, it represents value for money. In the following chapters, the committee considers:

 the purpose and provisions of the bill;

 the costs associated with Australia's proposed membership of the AfDB

Group, including future financial commitments, and the anticipated benefits of becoming a member; and

 the governance structure of the Bank and the Fund.

Acknowledgements 1.20 The committee thanks all those who assisted with the inquiry. It especially acknowledges the contributions of those who made written submissions.

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Chapter 2

Purpose and provisions of the bill 2.1 The purpose of the bill is to enable Australia to join the AfDB Group. To become a member, Australia must make payments as required under the Agreement Establishing the African Development Bank and the Agreement Establishing the African Development Fund. The bill would authorise the Australian Government to purchase membership shares in the AfDB and to make payments to meet membership and continuing subscriptions to the ADF.1

2.2 The bill comprises eight clauses. Clause 1 specifies the Act's short title— African Development Bank Act 2013; clause 2 specifies that the Act would commence on the day after the Act receives the Royal Assent; and clause 3 defines key terms in the legislation.

Authority to make payments to the African Development Bank

2.3 Clause 4 of the bill authorises the minister to purchase a fixed number of membership-related shares in the Bank. Specifically, it provides for the minister, on behalf of Australia, to make an arrangement for Australia to become a member of the AfDB and to subscribe to:

a) 5,912 paid-up shares of the authorised capital stock of the Bank at a price not more than 10,000 special drawing rights per share; and

b) 92,616 callable shares of the authorised capital stock of the Bank at a price not more than 10,000 special drawing rights a share.

2.4 The International Monetary Fund (IMF) created special drawing rights (SDRs) as an international reserve asset, which can be exchanged for freely useable currencies.2 The value of SDRs is based on 'a basket of four key international currencies'—euro, Japanese yen, pound sterling and US dollar. SDRs also serve as the unit of account of the IMF and some other international organisations.3

2.5 While the bill, if enacted, would establish the legislative authority for the purchase of the 98,528 shares to become a member of the Bank, the Explanatory Memorandum makes clear that the minister 'may subscribe to, and pay for, only the specified number of shares'. It notes further that 'if, in the future, Australia wanted to

subscribe to more shares, then the Act would be amended to authorise this'.4

1 African Development Bank Bill 2013, Explanatory Memorandum, (Explanatory Memorandum), General outline and financial impact, p. 3.

2 IMF website, 'Special Drawing Rights (SDRs)', www.imf.org/external/np/exr/facts/sdr.htm (accessed 20 June 2013).

3 IMF website, 'Special Drawing Rights (SDRs)', www.imf.org/external/np/exr/facts/sdr.htm (accessed 20 June 2013).

4 Explanatory Memorandum, paragraph 1.11.

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2.6 In respect of the callable shares, the Explanatory Memorandum notes that:

…callable shares would only occur if the Bank could not otherwise meet its financial obligations and so explicitly requested payment for some or all of these shares from all Bank members.5

2.7 Payment for the Bank shares, including payments connected with securities issued for the payments of these funds, is to be drawn from Consolidated Revenue Funds.

Authority to make payments to the African Development Fund

2.8 To become a member of the AfDB, Australia, as a non-regional state, must first accede to membership of the ADF.6

2.9 Under clause 5, the minister, on behalf of Australia, may make an arrangement for Australia to subscribe to the Fund in connection with the initial subscription to become a member of, and any subsequent subscription to, the Fund.7 The Explanatory Memorandum notes that payments for subscriptions to the Fund would come from money appropriated under other legislation, such as an annual appropriation.8

Authority to issue securities

2.10 Clause 6 of the bill authorises the minister to issue securities by Australia to make payments for Australia's initial subscription to shares in the Bank and to subscriptions to the Fund.

Executive power

2.11 The bill stipulates in clause 7 that the legislation would not limit the executive power of the Commonwealth.

Making rules

2.12 The legislation under clause 8 provides for the minister to make rules by legislative instrument prescribing matters:

a) required or permitted by the Act to be prescribed by the rules; or

b) necessary or convenient to be prescribed for carrying out or giving effect to the Act.9

5 Explanatory Memorandum, paragraph 1.10.

6 Agreement Establishing the African Development Bank as amended , (Khartoum, 4 August 1963), Article 3; African Development Bank Group, AfDB in Brief, May 2013, p. 9, http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/AfDB%20in%20 Brief.pdf (accessed 20 June 2013).

7 Explanatory Memorandum, paragraph 1.12.

8 Explanatory Memorandum, paragraph 1.12.

9 The bill, clause 8.

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2.13 In this regard, the Explanatory Memorandum indicates that it was not envisaged that any such rules would 'be required to give effect to the Act'. It explains:

At the time of writing, however, it was Office of Parliamentary Counsel policy to ensure that all new legislation contains a clause to cover the scenario where the Government wants to make rules to further define certain parts of a new Act, including any amendments subsequently made to the Act.10

Statement of compatibility with Human Rights

2.14 The Explanatory Memorandum states that the bill 'does not raise any human rights issues'.11 Consistent with this view, the Parliamentary Joint Committee on Human Rights found that the bill was 'unlikely to raise human rights concerns'.12

10 Explanatory Memorandum, paragraph 1.15.

11 Explanatory Memorandum, paragraphs 2.8-2.10.

12 Parliamentary Joint Committee on Human Rights, Examination of legislation in accordance with the Human Rights (Parliamentary Scrutiny) Act 2011, Bills introduced 27 May-6 June 2013, Eighth Report of 2013, June 2013, p. 69.

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Chapter 3 Membership—costs

3.1 Funding for Australia's membership of the AfDB Group 'forms part of the government's commitment to increase Australia's official development assistance over the long term'.1 In this chapter, the committee examines in greater detail the financial

and resource commitment Australia must make to become a member of the AfDB Group and whether membership would be a cost effective way to pursue Australia's national interests.

Preliminary funding 3.2 In its Budget Papers 2012-13, the government announced that it would provide $9.3 million over four years to commence the process of joining the Group. This funding was to be used 'to support the legislative, diplomatic and consultative processes' involved in becoming a member of the Bank.2 The funding included $8.1 million to be absorbed from within existing AusAID resources, and $1.1 million for the Treasury, of which $0.8 million would be offset from the provision for expanded aid funding in the Contingency Reserve.3

Membership of the African Development Bank Group 3.3 The AfDB Group's overarching objective is to foster sustainable economic development and social progress in its regional member countries, 'thus contributing to poverty reduction'. The Group achieves this objective by:

 mobilising and allocating resources for investment in regional member countries; and

 providing policy advice and technical assistance to support development efforts.4

3.4 To join the Group requires a 'significant upfront investment in a one-off capital contribution' and 'a substantial annual contribution' to continue as a member. Thus, Australia must purchase Bank shares and make contributions to the Fund.5 According to AusAID, contribution rates for the initial subscriptions to both the AfDB and ADF are based on Australia's International Monetary Fund quota, relative to other

1 Commonwealth of Australia, Budget, Budget Measures, Budget Paper No. 2, 2012-13, p. 162.

2 Commonwealth of Australia, Budget, Budget Measures, Budget Paper No. 2, 2012-13, p. 162.

3 Commonwealth of Australia, Budget, Budget Measures, Budget Paper No. 2, 2012-13, p. 162.

4 African Development Bank Group, 'Mission & Objective', http://www.afdb.org/en/about- us/mission-objective/ (accessed 17 July 2013).

5 See Joel Negin and Glenn Denning, Study of Australia's approach to aid in Africa, Final Report, commissioned study as part of the Independent Review of Aid Effectiveness, 21 February 2011, p. 31.

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AfDB Group non-regional members.6 The Explanatory Memorandum indicated that, at current forecast exchange rates, membership payments to the Group would total around $249 million, payable from 2014-15 to 2016-17.

Membership of the AfDB

3.5 In November 2012, Mr Shaun Anthony, Treasury, explained that Australia would be allowed to purchase a maximum shareholding of 1.43 per cent. He noted that in terms of the size of its shareholding at 1.43 per cent, Australia would be placed higher than Switzerland at 1.39 per cent and lower than Germany at 3.89 per cent. At that time, the United States had a 6.3 per cent shareholding.7

3.6 During the second reading speech, the Hon Mr Ripoll MP informed the House that Australia would purchase approximately $88 million (SDR 59.1 million) worth of shares at current forecast exchange rate. He stated that this amount, at less than 1.5 per cent of the bank's total capital stock, would place Australia as the bank's 20th largest shareholder and ninth largest non-African shareholder.8

3.7 The Treasury would administer the purchase of the $88.2 million worth of Bank shares to be paid over three years, 2014-15 to 2016-17.9

Capital increases

3.8 The AfDB uses the capital provided by its shareholders as a basis on which to borrow from the financial markets, and then on-lends these resources to eligible regional member countries. According to the Bank:

Its capital base is therefore increased only as and when necessary in order to maintain its capital adequacy at the prudential level required. As its lending activities increase, so too must the capital reserves paid in by shareholders. This allows the Bank to continue to tap international capital markets and raise development and project finance which may otherwise not reach the continent.10

3.9 Periodically, multilateral development banks, such as AfDB, use a general capital increase (GCI) to boost their ordinary capital base. It is usually triggered by the need to ensure the adequacy of capital resources in keeping with the institution's

6 AusAID, Proposal for Australia to Pursue Membership of the African Development Bank and the African Development Fund, Consultation Paper, July 2012, p. 22.

7 Joint Standing Committee on Treaties, Committee Hansard, 26 November 2012, p. 5. The percentages change slightly over time. See African Development Bank, 'Distribution of voting power by executive director; statement of voting power as at 31 March 2013.

8 Mr Ripoll, House of Representatives Hansard, 30 May 2013, p. 4530.

9 Commonwealth of Australia, Budget, Budget Measures, Budget Paper No. 2, 2013-14, p.160. The Budget Papers estimated the value at $88.2 million.

10 African Development Bank, 'Frequently asked Questions on ADF', answer to question no. 4, http://www.afdb.org/fileadmin/uploads/afdb/Documents/Generic- Documents/FAQS%20on%20ADF%20Eng%20_2_.pdf (accessed 16 July 2013).

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operational requirements and ability to 'sustain exogenous shocks'.11 Since its inception, the AfDB has benefited from six GCIs—its fourth increase, or GCI IV, took place in 1987 while its fifth increase, GCI V, was adopted in 1998 and became effective in 1999.12

3.10 Discussions on the most recent increase—GCI VI—began in 2009 when members recognised that a capital increase would become necessary in 2011 'to provide the Bank with the capacity to respond adequately to the financial and economic crisis and support the scaling up of its operations'.13

3.11 All members of the Bank have the right to a proportion of the capital increase equivalent to their current shareholding.14 Thus, as a member of the AfDB, Australia would have the right to purchase newly issued shares, which may arise through future general or special capital increases. While there is no obligation to purchase such shares, there is a general expectation that members would do so.15

3.12 AusAID informed the committee that there were no indications of a seventh GCI being initiated in the foreseeable future.16

Contingent liability

3.13 As part of its initial contribution, Australia would take on a contingent liability (callable capital) with the Bank. Thus, in circumstances where the Bank was unable to meet its financial liabilities, Group shareholders, including Australia, would be called on to contribute additional capital in proportion to their shareholding to resolve the default. The Explanatory Memorandum stated that Australia's contingent liability would stand at approximately $1.4 billion (at current forecast exchange rates).17 According to Treasury and AusAID, callable capital is a standard feature of multilateral development bank membership and is 'only called on if the bank would

11 African Development Bank Group, The Sixth General Increase in the Capital Resources of the African Development Bank: Issues and Framework, 25 March 2009, paragraph 6.1.

12 African Development Bank Group, The Sixth General Increase in the Capital Resources of the African Development Bank: Issues and Framework, 25 March 2009, paragraph 4.1 and African Development Bank Group website, 'The GCI Q&A', http://www.afdb.org/en/topics-and- sectors/topics/capital-increase/the-gci-qa/ (accessed 17 July 2013).

13 African Development Bank Group, The Sixth General Increase in the Capital Resources of the African Development Bank: Issues and Framework, 25 March 2009, paragraph 1.2.

14 African Development Bank Group, The Sixth General Increase in the Capital Resources of the African Development Bank: Issues and Framework, 25 March 2009, paragraph 6.1.

15 Australian Treaty National Interest Analysis [2012] ATNIA 23, paragraph 35.

16 Answer to question on notice no. 2 at Appendix 2.

17 Australian Treaty National Interest Analysis [2012] ATNIA 23, paragraph 36; Explanatory Memorandum, General outline and financial impact, p. 3 and the Treasury and AusAID, Submission 2, p. 10.

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otherwise default'.18 Treasury's submission indicated that Australia's liability would be:

…reported in the Statement of Risks in the Budget, consistent with the treatment of similar arrangements at the World Bank and the ADB [Asian Development Bank].19

3.14 The Australian Treaty National Interest Analysis (ATNIA 23) stated that the Bank 'has never called on this extra capital, nor has any other multilateral development bank with similar provisions for callable capital'.20 Treasury assessed the

risk of the Bank defaulting on its debts and calling on capital as low, stating that such calls were 'unprecedented' and the Bank was regarded as a 'sound institution'.21

Membership of the African Development Fund

3.15 The Africa Development Fund (ADF) is the concessional arm of the AfDB Group and has supported low-income countries in Africa in their economic and social development since 1974. It 'contributes to the promotion of economic and social development in 40 least developed African countries' by providing generous concessional funding for projects and programs as well as for technical assistance for capacity-building activities.22 This support has been provided on 'highly concessional terms, commensurate with the scale of countries' needs and their limited ability to repay loans'.23 According to the Bank:

No interest is charged on ADF loans; however, the loans carry a service charge of 0.75 per cent per annum on outstanding balances, and a commitment fee of 0.50 per cent per annum on undisbursed commitments. Project loans have a 50-year repayment period, including a 10-year grace period. Lines of credit have a 20-year repayment period with a five-year grace period.24

3.16 The Fund's resources come from subscriptions by the Bank, funds derived from operations accruing to the Fund and periodic replenishments by state participants, usually on a three-year basis. Also, the Fund may at intervals review the

18 Submission 2, p. 10.

19 Submission 2, p. 10.

20 Australian Treaty National Interest Analysis [2012] ATNIA 23, paragraph 36. See also answer to questions taken on notice, question no. 1 at Appendix 2.

21 Submission 2, p. 10; Explanatory Memorandum, General outline and financial impact, p. 3. See also answer to questions taken on notice no. 1 at Appendix 2.

22 African Development Bank Group, 'African Development Fund (ADF)', http://www.afdb.org/en/about-us/african-development-fund-adf/ (accessed 17 July 2013).

23 African Development Fund, ADF Long-Term Financial Sustainability and Capacity, Discussion Paper, ADF-12 Mid-Term Review, September 2012, Praia, Cape Verde, paragraph 1.1.

24 African Development Bank Group, 'African Development Fund (ADF)', http://www.afdb.org/en/about-us/african-development-fund-adf/ (accessed 17 July 2013).

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adequacy of its resources and, if it deemed desirable, authorise a general increase in members' subscriptions.

3.17 The Explanatory Memorandum indicated that, while approximately $88 million would be for paid-up membership shares to the Bank, Australia's initial membership subscription to the Fund would amount to around $161 million. Further, Australia would be expected to make additional regular payments to the Fund from 2014, the size of which would depend on future negotiations between Australia and the Fund and its donors.25

3.18 Budget Papers 2013-14 explained in greater detail that Australia's membership of the Fund would not only involve the initial contribution of $160.9 million but also payments towards the thirteenth and fourteenth Fund replenishments, scheduled for 2014-15 and 2016-17 respectively.26 AusAID would administer Australia's membership of the Fund.

Replenishment funds

3.19 As noted earlier, unlike loans from a commercial bank, ADF loans are interest free and repayable over very long time frames with a 10-year period of grace.27 In addition, countries with a moderate or high risk of debt distress that have reduced repayment capacity receive ADF grants.28 The Fund explained that its resources must be replenished regularly through contributions because:

…the level of reflows (loan repayments) is not sufficient to provide a substantial amount of new financing to meet the continent's development needs. Furthermore, the ADF's reflows have been strongly reduced through major debt forgiveness initiatives such as the Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI).29

3.20 The ADF has had 12 general replenishments on a three-yearly basis, with its twelfth resource replenishment concluded successfully in October 2010 for activities

25 Explanatory Memorandum, General outline and financial impact, p. 3.

26 Commonwealth of Australia, Budget, Budget Measures, Budget Paper No. 2, 2013-14, p.161.

27 AfDB, 'Frequently asked Questions on ADF', answer to question 2, http://www.afdb.org/fileadmin/uploads/afdb/Documents/Generic- Documents/FAQS%20on%20ADF%20Eng%20_2_.pdf (accessed 16 July 2013).

28 AfDB, 'Frequently asked Questions on ADF', answer to question 2, http://www.afdb.org/fileadmin/uploads/afdb/Documents/Generic- Documents/FAQS%20on%20ADF%20Eng%20_2_.pdf (accessed 16 July 2013).

29 AfDB, 'Frequently asked Questions on ADF', answer to question 2, http://www.afdb.org/fileadmin/uploads/afdb/Documents/Generic- Documents/FAQS%20on%20ADF%20Eng%20_2_.pdf (accessed 16 July 2013).

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in 2011-2013.30 The bulk of subscriptions in recent successive three-yearly replenishments for the Fund were:

 eleventh replenishment (2008-2010), which achieved a replenishment of USD 8.90 billion; and

 twelfth replenishment of USD 9.50 billion, which, as noted above, finalised negotiations in October 2010.31

3.21 The Fund initiated negotiations for its thirteenth Fund replenishment in February 2013. Australia attended the opening session of the second ADF thirteenth replenishment meeting in June 2013.32 These sessions provide the opportunity for donors 'to review past performance and agree policy directions for the future, as well as agreeing an overall target for the replenishment and relative burden-sharing among donors'.33

3.22 The ATNIA 23 referred to the option available to Australia to make replenishment payments, which would allow it to maintain its relative voting power.34 It noted further:

While there is no legal obligation to make such payments…there is an expectation that Australia will make such regular additional contributions to the AfDF at three-yearly replenishment meetings. The size and conditions around these payments would be decided by the Australian Government, in consultation with the AfDF and its other donor countries.35

3.23 In response to the committee's request for additional information on Australia's commitment to the thirteenth fund replenishment, AusAID stated that it was envisaged that Australia would make a contribution. It noted that the government would decide on the size of this contribution, based on Australia's development priorities for Africa and ongoing assessments of the Group's 'development effectiveness and its alignment with Australia's national interests and development priorities'.36

30 African Development Bank Group, 'African Development Fund (ADF)', http://www.afdb.org/en/about-us/african-development-fund-adf/ (accessed 17 July 2013).

31 African Development Bank Group, AfDB in Brief, May 2013, p. 11, http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/AfDB%20in%20 Brief.pdf (accessed 20 June 2013) and Outcome of the ADF-12 Replenishment Consultations, 22 October 2010.

32 Dr Donald Kaberuka, President, Opening remarks, Opening Session of the Second ADF 13 Replenishment Meeting, 12 June 2013.

33 UK House of Commons Hansard, Debate, Overseas Development and Co-operation, 3 February 1992, vol 203, cc75-102.

34 Australian Treaty National Interest Analysis [2012] ATNIA 23, paragraph 34.

35 Australian Treaty National Interest Analysis [2012] ATNIA 23, paragraph 34.

36 Answer to question on notice no. 2(b) at Appendix 2 and Submission 2, p. 10.

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Membership withdrawal

3.24 If Australia ceased to be a member of the ADF, the Fund and Australia would proceed to a settlement of accounts and agree on the amount to be paid to Australia. The ATNIA explained:

If no such agreement is reached within 6 months from the date on which Australia ceased to be a member of the AfDF, or such later date as agreed, the AfDF Agreement provides that, among other provisions, the AfDF shall return to Australia its subscription or the principal repayments derived therefrom and held by the AfDF on the date on which Australia ceased to be a member of the AfDF, except to the extent that, in the opinion of the AfDF, such funds will be needed by the AfDF to meet its financial commitments of the AfDF Agreement.37

3.25 The ATNIA explained further that if Australia withdrew from the ADF Agreement during its membership, it would remain liable for its direct obligations and contingent liabilities to the Bank while any part of the loans or guarantees contracted before the termination date was outstanding.38

Additional resources

3.26 Mr Robin Davies, Associate Director, the Development Policy Centre, ANU, drew attention to additional resources Australia would call on if it were to engage actively with the Bank. He noted that AusAID's headquarters and its regional post in Pretoria, 'would need to do some of the work of coordinating the collection of views from field offices on the performance of the AfDB' and then feed those views to the Bank's headquarters in Tunis/Abidjan. Mr Davies stated further:

AusAID would need to make available a substantial portion of the time of a senior officer, probably at first assistant secretary level, to engage with the bank in regular high-level consultations, support the Governor during annual meetings and act as Australia's 'deputy' during the replenishment negotiations which occur every three years, last for up to a year and involve numerous major and ancillary meetings. Staff working in the multilateral area of AusAID would need to prepare, keep up to date and regularly assess the progress of an engagement strategy with the AfDB. And membership of the bank would entail numerous consultation, liaison and related obligations for many other staff of the agency, from the Director General down.39

3.27 Treasury and AusAID referred to the $9.3 million allocated over four years to complete the legislative and treaty process (see paragraph 3.2). They indicated that these resources would also provide for Australia's continuing 'policy and program

37 Australian Treaty National Interest Analysis [2012] ATNIA 23, paragraph 38.

38 Australian Treaty National Interest Analysis [2012] ATNIA 23, paragraph 47. For additional information see AusAID's answer to question on notice no. 3 at Appendix 2.

39 Submission 5, pp. 23-24.

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engagement with the Group, including support for the Group's ongoing operational reform and improved project performance'.40

3.28 Clearly, there are substantial costs involved in joining and remaining a member of the AfDB Group. One of the central questions before the committee is whether the benefits of joining the Bank balance or outweigh the costs.

Africa and Australia's overseas development assistance 3.29 The driving force behind Australia's overseas development assistance is to help people overcome poverty and achieve sustainable development by supporting progress against meeting the Millennium Development Goals.41 Australia's aid

program also serves Australia’s national interests by promoting stability and prosperity in areas of strategic importance to Australia and helping to grow the global economy, which is 'good for Australian business'.42

Delivering assistance in Africa

3.30 Although many countries in Africa have recorded improvements in human development, progress on the continent has been slow. Of the fifty-one African countries on the Human Development Index, thirty-seven are rated as low on human development.43 According to a recent economic outlook for Africa:

Income inequality is widening and education and health indicators are deteriorating in some parts of the continent. As a result and, in addition to resurging cycles of conflict and a restricted access to finance and other services, many people have remained trapped in poverty, depriving them the benefits implied by higher economic growth.44

3.31 In recent years, the Australian Government and the public in general have shown a growing interest in Africa. Accordingly, the government has increased its engagement with African countries including through its overseas development assistance programs. AusAID explained that Australia's strategic approach to providing aid to Africa:

40 Submission 2, p. 10. See also answer to question on notice no. 4 at Appendix 2.

41 AusAID, Looking West: Australia's strategic approach to aid in Africa 2011-2015, December 2010, p. 3.

42 AusAID, An Effective Aid Program for Australia: Making a real difference—Delivering real results, updated June 2012, p. 6.

43 See Table 3, 'Human Development in Africa', in African Development Bank Group, OECD Development Centre et al, African Economic Outlook 2013, pocket edition, p. 15.

44 African Development Bank Group, OECD Development Centre et al, African Economic Outlook 2013, pocket edition, p. 15.

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…reflects the Government's commitment to being a good international citizen and to supporting global efforts to reduce poverty and achieve sustainable development.45

3.32 Australia directs its efforts to sectors where it is best placed to make a difference and where its resources can most effectively and efficiently be deployed.46 Australia's priority areas for aid to Africa include:

 maternal and child health;

 water and sanitation; and

 food security and agriculture. 47

3.33 AusAID also supports the work of governments in Africa to improve governance and transparency in their mining sectors and responds to humanitarian needs in Africa.48

Advantages in membership of the Bank 3.34 To deliver its aid objectives in Africa, Australia has relied on partnerships with organisations that have experience or expertise in Australia's priority areas. They include established African institutions, multilateral and bilateral donors and non-government organisations (NGOs), community based organisations and Australian institutions.49

Reputation—local knowledge and expertise

3.35 Multilateral organisations, including international financial institutions, have proven particularly effective in development assistance because of their network of

45 AusAID, Looking West: Australia's strategic approach to aid in Africa 2011-2015, December 2010, p. 8.

46 AusAID, An Effective Aid Program for Australia: Making a real difference—Delivering real results, updated June 2012, p. 1.

47 AusAID, Looking West: Australia's strategic approach to aid in Africa 2011-2015, December 2010, p. 3; Africa Annual Program Report 2011, June 2012, p. 4, http://ausaid.gov.au/Publications/Documents/africa-appr-2011.pdf; and AusAID website, Sub-Saharan Africa, http://ausaid.gov.au/countries/Sub-saharan-africa/pages/how-aid.aspx (accessed 17 July 2013).

48 AusAID website, 'Sub-Saharan Africa', http://ausaid.gov.au/countries/Sub-saharan- africa/pages/how-aid.aspx (accessed 17 July 2013).

49 AusAID, Looking West: Australia's strategic approach to aid in Africa 2011-2015, December 2010, p. 15.

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specialist expertise and access to pooled resources from multiple donors.50 Using African institutions likewise has distinct benefits. For example, they enable Australia, which has a small number of staff located in only five countries in Sub-Saharan

African, to extend its reach and influence in geographic areas where it has 'no presence on the ground'.51 AusAID also stated that:

Working with African institutions demonstrates Australia's commitment to African-led development and support for broader bilateral relationships in Africa. Additionally, working through international and African partners provides Australia with greater access to policy discussion and analysis.52

3.36 In this regard, the AfDB is uniquely placed as a partner of choice for Australia's ODA goals in Africa. AusAID's consultation paper on Australia's proposed membership of the AfDB Group drew particular attention to the Group's majority African ownership. It argued that the Bank was 'better placed than any other development finance institution operating in the region to understand local and regional challenges and opportunities'.53 It was a trusted partner of African governments able to gain access 'behind closed doors' which enabled the Bank, with a degree of credibility and authority, 'to tackle sensitive and difficult issues'.54

3.37 The independent review of Australia's aid effectiveness was of the view that, if well managed and presented, Australia's contribution 'could be a highly visible way of demonstrating commitment to the development of Africa, without adding to the

50 AusAID observed that individual donors are unable to resolve key development challenges, particularly those facing fragile states that are at a higher risk of conflict, economic dependence on a limited range of commodities, a narrow public revenue and patronage-based distribution of resources. AusAID, Africa Annual Program Report 2011, June 2012, p. 3, http://ausaid.gov.au/Publications/Documents/africa-appr-2011.pdf (accessed 17 July 2013). See also Senate Foreign Affairs, Defence and Trade References Committee, Australia's overseas development programs in Afghanistan, May 2013, (pp. 62-77) which goes into detail about the advantages of contributing to the World Bank sponsored Afghanistan Reconstruction Trust Fund.

51 AusAID, An Effective Aid Program for Australia: Making a real difference—Delivering real results, p. 54. As at June 2012, the numbers of Australian staff in Sub-Saharan Africa were Ethiopia (six); Ghana (six); Kenya (14); South Africa (19) and Zimbabwe (7). AusAID, Africa Annual Program Report 2011, June 2012, p. 5, http://ausaid.gov.au/Publications/Documents/africa-appr-2011.pdf (accessed 17 July 2013).

52 AusAID, Looking West: Australia's strategic approach to aid in Africa 2011-2015, December 2010, p. 15.

53 AusAID, Proposal for Australia to Pursue Membership of the African Development Bank and African Development Fund, Consultation Paper, July 2012, p. 15.

54 AusAID, Proposal for Australia to Pursue Membership of the African Development Bank and African Development Fund, Consultation Paper, July 2012, p. 15.

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problems of donor proliferation.55 Moreover, the review described the Bank as 'well respected'.56

3.38 In March 2012, AusAID released a report on 42 multilateral organisations which had been assessed against a framework that included seven components—three relating to results and relevance, and four to organisational behaviour.57 This report, the Australian Multilateral Assessment (AMA), stated that the Bank 'generally enjoys strong relationships with government partners and engenders trust'.58 Indeed, a 2012 survey undertaken by MOPAN found that all groups surveyed agreed that the nature of the organisation itself was the Bank's greatest strength—'a regional bank led largely by individuals who are familiar with and sensible to issues particular to the African continent and to Africans'. The survey also highlighted the Bank's 'talented pool of experts and sound financing capacities particularly for projects deemed "difficult"'.59 The Bank's 2013 review of its development effectiveness found that it had made 'solid progress on improving aid effectiveness and bank staff are increasingly active participants in country-led dialogue and coordination processes'.60

3.39 AusAID noted the confidence that donors demonstrated in the Group through their recent US$9.6 billion contribution to the 12th replenishment Fund—the largest replenishment in the Fund's history.61

Synergies and complementarities

3.40 AusAID already has a working relationship with the Bank and has been engaged with the institution at project-level for some time.62 In 2009, Australia established partnerships with a number of organisations including the AfDB to improve access to water and sanitation in southern and central Africa.63 AusAID

reported that:

Bilateral support to Malawi and Mozambique, delivered through partnerships with the African Development Bank and World Bank

55 Independent Review of Aid Effectiveness, April 2011, p. 141.

56 Independent Review of Aid Effectiveness, April 2011, pp. 11-12.

57 AusAID, Australian Multilateral Assessment, March 2012, p. x.

58 AusAID, Australian Multilateral Assessment, March 2012, p. 58.

59 Multilateral Organisation Performance Assessment Network, Assessment of Organisational Effectiveness and Reporting on Development Results, African Development Bank (AfDB), Volume 1, December 2012, p. 19.

60 African Development Bank Group, Annual Development Effectiveness Review 2013, p. 45.

61 Answer to question on notice no. 1(b) at Appendix 2.

62 AusAID, Looking West: Australia's strategic approach to aid in Africa 2011-2015, December 2010, pp. 11 and 15.

63 AusAID, Africa Development Cooperation Report 2009, p. 5, http://ausaid.gov.au/Publications/Documents/2009-Africa-dcr.pdf (accessed 17 July 2013).

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respectively, will focus on the provision of water and sanitation facilities and institutional development.64

3.41 For example, in partnership with the AfDB, Australia contributed to a project intended to enable communities in seven market centres in Malawi to benefit from water supplies.65

3.42 In 2010, AusAID indicated that it would continue to support the World Bank's Water and Sanitation Program and the AfDB's African Water Facility with its focus on water and energy infrastructure.66 In 2011, AusAID remained engaged with the Bank on the water and sanitation program in Malawi and the African Water Facility. At this time, a study commissioned as part of the independent review of Australian aid effectiveness suggested that:

For Australian investments in water and sanitation and food security in focus countries, AusAID would likely be able to partner with the AfDB to co-finance and perhaps scale-up. AfDB expertise and investments in irrigation and roads would complement and enhance the value of AusAID's agriculture and food security initiatives and, in WATSAN [water and sanitation] projects, the AfDB could provide much-needed scale. This would provide, in the words of one interviewee, 'bigger bang for [AusAID's] buck'.67

3.43 The study recommended that AusAID 'expand its functional partnership with the AfDB for two to three years on a few significant investments (as is currently done in Malawi) with a view to possible full membership by 2015'.68

3.44 The independent review of Australia's aid effectiveness also recommended that Australia join the Bank which it described as an organisation that focuses on what it does well—infrastructure and promoting regional integration.69 It found evidence of a good partnership between AusAID and the Bank.70

3.45 Before the Joint Committee on Treaties, AusAID referred to the 'strong congruence between the AfDB's strategic direction and AusAID's current focus on

64 AusAID, Africa Development Cooperation Report 2009, p. 7, http://ausaid.gov.au/Publications/Documents/2009-Africa-dcr.pdf (accessed 17 July 2013).

65 AusAID, Annual Report 2009-2010, p. 99.

66 AusAID, Looking West: Australia's strategic approach to aid in Africa 2011-2015, December 2010, p. 11.

67 Joel Negin and Glenn Denning, Study of Australia's approach to aid in Africa, Final Report, commissioned study as part of the Independent Review of Aid Effectiveness, 21 February 2011, p. 31.

68 Joel Negin and Glenn Denning, Study of Australia's approach to aid in Africa, Final Report, commissioned study as part of the Independent Review of Aid Effectiveness, 21 February 2011, p. 31.

69 Independent Review of Aid Effectiveness, April 2011, pp. 11-12.

70 Independent Review of Aid Effectiveness, April 2011, p. 138.

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Africa'. It stated that addressing poverty was central to the Bank's core mandate which matched the fundamental purpose of Australia's aid program and that the Bank's priorities aligned with the strategic goals of Australia's African aid program.71

3.46 Infrastructure is a particular priority for the AfDB that aligns with Australia's aid objectives and interests in Africa. For example, in his closing statement at the 2013 AfDB Annual Meeting, the President of the Bank acknowledged that there was a consensus that 'with Africa's economies at a turning point, the infrastructure deficit is an important binding constraint'. He said:

Drawing on experience from other countries, we all agree that unless African countries can unblock this, at some point the current growth momentum will be interrupted and will not be sustained'.72

3.47 AusAID's consultation paper recorded that 70.9 per cent of the AfDB's loan and grant approvals were in infrastructure.73 Mr Davies, the Development Policy Centre, also noted the close association between AfDB and Australian priorities, particularly in the area of major infrastructure projects. He observed that:

…supporting the AfDB, as an infrastructure bank and a bank committed to supporting regional integration and the provision of regional public goods, is strongly consistent with both Australia's objectives in the G20 and its commitment to helping ensure that oil, gas and mining investments contribute to better national development outcomes in developing countries—particularly fragile and conflict-affected states.74

3.48 As well as partnership projects with the AfDB and strong alignment of priorities, there is a notable degree of geographical overlap between the top ten recipients of Australian aid to Africa and the top ten recipients of ADF disbursements. Mr Davies drew attention to Ethiopia, Tanzania, Kenya and Uganda which are major recipients of aid from both Australia and the ADF.75

3.49 In brief, the Bank is an ideal mechanism through which Australia can deliver assistance to Africa because the Bank:

71 Joint Committee on Treaties, Committee Hansard, 26 November 2012, p. 1.

72 President Donald Kaberuka, Closing statement, Closing Session of the 2013 AfDB Annual Meetings, 31 May 2013, http://www.afdb.org/en/news-and-events/article/closing-session-of- the-2013-afdb-annual-meetings-closing-statement-by-the-afdb-president-donald-kaberuka- 12023/ (accessed 18 July 2013).

73 AusAID, Proposal for Australia to Pursue Membership of the African Development Bank and African Development Fund, Consultation Paper, July 2012, p. 16.

74 Submission 5, p. 16.

75 Submission 5, p. 14.

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 specialises in and has a better understanding of African issues, of regional

needs and priorities than other development agencies;76

 is a trusted partner of African governments and plays an effective role in promoting donor coordination at regional and country-level thereby reducing potential for duplication and inefficiency;77

 is the leading and trusted voice of Africa on the world stage and its

representative in international fora;

 allocates a large share of its resources to infrastructure and regional

integration which complements Australia's development priorities in Africa and builds on projects that Australia is already funding (agriculture and food security initiatives and water and sanitation projects);78 and

 provides a level of experience and on-the-ground presence in Africa that Australia cannot match—the Bank's decentralisation strategy has resulted in the formal supervision of 64 per cent of operations in 2012.79

Cost effectiveness

3.50 Importantly, the AfDB Group is recognised as a cost effective means of delivering aid in Africa. The UK's multilateral review rated the Bank's concessional lending arm, the ADF, 'highly for its organisational effectiveness and value for money'.80 It scored the Fund as strong on organisational strengths and good on overall

assessment of value for money.81

3.51 The independent review of Australia's aid effectiveness was of the view that Australia's membership of the Bank would 'represent value for money and be a high-level indication of Australia's commitment to development in Africa'. It stated

76 See for example, Multilateral Organisation Performance Assessment Network, Assessment of Organisational Effectiveness and Reporting on Development Results, African Development Bank (AfDB), Volume 1, December 2012, p. 87.

77 AusAID, Australian Multilateral Assessment, March 2012, p. 57. See also AusAID, Looking West: Australia's strategic approach to aid in Africa 2011-2015, December 2010, p. 15.

78 AfDB website, 'ADF Key Messages', http://www.afdb.org/fileadmin/uploads/afdb/Documents/Generic- Documents/ADF%20Key%20messages%20Eng%20_2_.pdf (accessed 19 July 2013).

79 African Development Bank, Annual Development Effectiveness Review 2013, p. 39; AusAID, Australian Multilateral Assessment, March 2012, p. 56; and Multilateral Organisation Performance Assessment Network, Assessment of Organisational Effectiveness and Reporting on Development Results, African Development Bank (AfDB), Volume 1, December 2012, p. 87.

80 Department for International Development, Multilateral Aid Review, March 2011, p. 164. See also Independent Review of Aid Effectiveness, April 2011, p. 141.

81 Department for International Development, Multilateral Aid Review, March 2011, p. 164. See also Independent Review of Aid Effectiveness, April 2011, p. 196.

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further that Australia's contributions to the Fund would 'represent a very efficient and effective way of scaling up assistance in Africa'.82

3.52 The AMA found that the Australian Government could have 'a reasonably high degree of confidence' that increases in core funding would deliver tangible development benefits in line with Australia's development objectives, and that the investment would 'represent good value for money'.83 It found:

AfDB has a clear mandate and over recent years has tightened its priorities around areas where it has a comparative advantage, particularly infrastructure and regional integration.84

3.53 Although the AMA rated the Bank as only satisfactory on cost and value consciousness, it noted that the Bank's governing body and management regularly focus on value for money and that the organisation was lean and efficient.85 The assessment rated the Bank as strong on delivering results on poverty and sustainable development in line with its mandate and on its alignment with Australia's aid priorities and national interests.86

3.54 The ATNIA relied on the findings of the UK multilateral aid review and of the AMA to conclude that the AfDB Group 'would be an excellent partner in delivering Australia's aid to Africa'.87

Promoting Australian interests

3.55 The 2012 AusAID consultation paper noted that simply increasing project level funding would 'not advance Australia's interests to the same extent as membership to the AfDB would, in terms of spurring economic growth and increased trade opportunities continent wide'. It stated further:

Nor would increasing levels of project funding be likely to help our reciprocal global agenda to the same degree. Other potential partners, including civil society groups, simply cannot operate at the scale or in the areas that the AfDB works.88

82 Independent Review of Aid Effectiveness, April 2011, pp. 11-12 and 141.

83 AusAID, Australian Multilateral Assessment, March 2012, pp. xv and 31.

84 AusAID, Australian Multilateral Assessment, March 2012, p. 57.

85 AusAID, Australian Multilateral Assessment, March 2012, p. 58.

86 AusAID, Australian Multilateral Assessment, March 2012, pp. 55-56.

87 Australian Treaty National Interest Analysis [2012] ATNIA 23, Agreement Establishing the African Development Fund done at Abidjan on 29 November 1972, as amended [2012] ATNIF 17 and Agreement Establishing the African Development Bank done at Khartoum on 4 August 1963, as amended [2012] ATNIF 18, paragraph 19 and Commonwealth of Australia, Budget, Budget Strategy and Outlook, Budget Paper No. 1, 2013-14, p. 33.

88 AusAID, Proposal for Australia to Pursue Membership of the African Development Bank and the African Development Fund, Consultation Paper, July 2012, p. 20.

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3.56 Thus, membership of the AfDB would not only provide Australia with the prospect of extending its reach and assistance in Africa but of opening up avenues for Australian enterprise. In this regard, AusAID noted that procurement was currently limited to members. It stated:

If Australia becomes a member, Australian firms will be able to bid for AfDB work in all 54 African member nations, working alongside African governments, businesses and local communities. Australians will be helping Africans as they strive for sustainable economic growth and to reduce poverty. The 2006-2011 annual average total of contracts awarded by the AfDB was close to US$2 billion.89

3.57 AusAID's consultation paper on the proposal for Australia to join the AfDB Group also highlighted how membership would allow Australia to broaden and develop relationships with the Group's then 77 current shareholders to support its multilateral interests and assist Australia's role as a G20 and OECD member.90

3.58 The Australia-Africa Mining Industry Group supported Australia's membership of the AfDB Group. In its view, the Bank 'stands up well to international comparisons of its effectiveness and efficiency'. It stated further that 'the rapidly increasing economic importance in global terms and the growth in Australian commercial interests in Africa requires a concomitant engagement by government'.91

Mining

3.59 Australia has significant mining interests in a number of African countries many of which confront considerable social and economic problems. As a world leader in the mining sector, Australia is well positioned to provide assistance to African countries to help them manage the industry through improving their resource governance and better regulatory framework.92

3.60 A major Australian aid program, the Mining for Development Initiative, is central to the Australian Government's engagement with mining companies in Africa and is administered by AusAID. It is intended to draw on expertise from across government, industry and academia in Australia to help developing countries, such as those in Africa, address mining-related challenges.93 Australia is also providing

89 AusAID, Proposal for Australia to Pursue Membership of the African Development Bank and the African Development Fund, Consultation Paper, July 2012, p. 21.

90 AusAID, Proposal for Australia to Pursue Membership of the African Development Bank and African Development Fund, Consultation Paper, July 2012, p. 19.

91 Submission 1.

92 See AusAID, Mining for Development in Africa, http://www.ausaid.gov.au/countries/ame/Documents/ausaid-mining-brochure-english.pdf (accessed 15 April 2013).

93 For a full discussion on Australia's assistance to the African mining sector see Senate Foreign Affairs, Defence and Trade References Committee, Importance of the Indian Ocean rim for Australia's foreign, trade and defence policy, June 2013, chapter 8.

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support in Africa to the Extractive Industries Transparency Initiative (EITI). The initiative aims for better transparency through companies publishing their payments and governments disclosing their receipts from those companies. By doing so, the EITI seeks to promote better governance and reduce the risk of diversion or misappropriation of funds generated by the development of a country’s extractive industry resources.

3.61 Mr Davies, the Development Policy Centre, noted that the AfDB was doing work along similar lines to help African countries 'strengthen their legal expertise and negotiating capacity in debt management and litigation, natural resources and extractive industries management and contracting, investment agreements and related commercial and business transactions'. According to Mr Davies:

Should Australia become a member of the AfDB, it would be indirectly supporting this facility and thereby furthering Australia's objectives in this area. In addition, one would expect the government to consider making a direct, voluntary contribution in support of its work.94

Infrastructure and technology

3.62 The International Road Assessment Programme (iRAP) noted that membership of the Bank would provide 'the conduit to prioritise and deliver development funds without the need for AusAID to duplicate country level engagement and governance in an often crowded international development space'.95 It agreed that membership of the AfDB Group would provide 'a cost and resource effective way to engage and support development in Africa' and that the resources required to meet Australia's commitment would be justified.96 The Programme referred to the Bank's networks throughout the country and its knowledge of Africa and its development requirements.97

3.63 In particular, iRAP drew attention to the pressing need to improve road and transport routes, indicating that road crashes were the biggest killer of young people worldwide. According to iRAP, road crashes are estimated to cost between 3-5% of GDP in Africa with per population death rates 5-6 times those in Australia despite lower levels of motorisation.98 It stated:

With rapid growth on the African continent expected there is an opportunity to lift the 3-5% of GDP annual burden of road crashes on economies by 'leap-frogging' traditional practice and delivering safe infrastructure at the early stages of development.99

94 Submission 5, p. 16.

95 Submission 3, p. [1].

96 Submission 3, p. [1].

97 Submission 3, p. [5].

98 Submission 3, p. [5].

99 Submission 3, p. [2] and [5].

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3.64 Overall, it supported Australia joining the AfDB Group, which, in its view, would be of mutual benefit to Africa and Australia and would 'accelerate the pace at which poverty reduction through safe and sustainable development is achieved'.100

3.65 General Electric (Australia and New Zealand) likewise saw great advantages in Australia becoming a member of the Bank. It noted that seven in ten people in Africa still lacked access to modern electricity, and that reliable power was 'critical to unlocking the region's economic and human potential'. It cited its own work across Africa delivering 'technology solutions for regional challenges'.101

3.66 Clearly Australia has a comparative advantage in assisting Africa through its partnership with the AfDB Group to develop specific areas where Australia has expertise and commercial interests including mining, large infrastructure projects and technology. Indeed, as noted earlier, Australian aid and Australian businesses are ideally placed to support the AfDB, 'as an infrastructure bank and a bank committed to supporting regional integration and the provision of regional public goods'.102

Conclusion 3.67 Overwhelmingly, evidence before the committee highlighted the numerous benefits that would accompany Australian membership of the AfDB. Membership would:

 place Australia in a good position to participate in and influence Africa's

development through a respected and credible regional institution;103

 help to reduce aid fragmentation and enable work to be carried out more

effectively in more development areas than is 'possible when working alone or through bilateral mechanisms';104

 signal Australia's intent to become a long-term partner in Africa's

development and allow Australia to forge deeper and stronger links with African governments and become a true and trusted partner;105

 give Australia access to important new networks in Africa and elsewhere that would provide opportunities to better contribute effectively to development outcomes on the continent;106

100 Submission 3, p. [6].

101 Submission 4, p. 2.

102 See Mr Robin Davies, Submission 5, p. 16.

103 Mr Paul Griffiths, Joint Committee on Treaties, Committee Hansard, 26 November 2012, p. 1.

104 AusAID, Proposal for Australia to Pursue Membership of the African Development Bank and the African Development Fund, Consultation Paper, July 2012, p. 5.

105 Joint Committee on Treaties, Committee Hansard, 26 November 2012, pp. 1-2 and AusAID, Proposal for Australia to Pursue Membership of the African Development Bank and the African Development Fund, Consultation Paper, July 2012, p. 19.

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 provide Australia with 'the opportunity to engage in policy dialogue on key

issues and to better understand how member countries see African development problems, priorities and issues';107

 complement Australia's strategic aid objectives with the AfDB's focus on

infrastructure and regional integration and 'help build an improved trade platform, resulting in further business opportunities for Australians through economic growth';108

 allow Australian firms to bid for AfDB work in all African member nations

and 'to work alongside African governments, businesses and local communities', which in turn would help to 'build and expand trade platforms for Australian companies and create profiles and opportunities for Australian businesses in Africa';109

 allow access to important new networks through the AfDB's 78 current

shareholders which Australia could use more effectively to support its multilateral interests, including trade liberalisation;110 and

 support Australia's role as a G20 and OECD member, and more broadly

reinforce Australia's role supporting the global multilateral architecture and making it more effective.111

3.68 On the whole, Australia's investment in the AfDB would not only be a cost-effective way to help Australia realise its development assistance objectives in Africa but would also promote Australia's broader diplomatic, economic, trade and national security interests throughout the region.

106 AusAID, Proposal for Australia to Pursue Membership of the African Development Bank and the African Development Fund, Consultation Paper, July 2012, p. 5.

107 AusAID, Proposal for Australia to Pursue Membership of the African Development Bank and the African Development Fund, Consultation Paper, July 2012, p. 5.

108 AusAID, Proposal for Australia to Pursue Membership of the African Development Bank and African Development Fund, Consultation Paper, July 2012, p. 19.

109 Joint Committee on Treaties, Committee Hansard, 26 November 2012, p. 2 and AusAID, Proposal for Australia to Pursue Membership of the African Development Bank and the African Development Fund, Consultation Paper, July 2012, p. 21.

110 AusAID, Proposal for Australia to Pursue Membership of the African Development Bank and the African Development Fund, Consultation Paper, July 2012, p. 19.

111 Joint Committee on Treaties, Committee Hansard, 26 November 2012, pp. 1-2 and AusAID, Proposal for Australia to Pursue Membership of the African Development Bank and the African Development Fund, Consultation Paper, July 2012, p. 19.

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Chapter 4 Governance

4.1 The committee has touched on the AfDB's corporate reputation and its effectiveness as a means of delivering aid to African countries. In this chapter, the committee looks at the Group's organisational structure and governance arrangements.

Organisational structure 4.2 The Bank is owned and overseen by its 77 members (recently increased to 78) and depends on the contributions from shareholders to cover its operating costs and to provide loans and grants. As at 31 May 2013, there were 53 regional members that held 59.712 per cent of the voting power. Nigeria was the largest shareholder with 8.586 per cent of the voting power and Egypt the second largest regional member with 5.455 per cent. There were 24 non-regional members, with the USA holding over 6 per cent of the voting power, Japan 5.5 per cent and Germany around 4 per cent.1

4.3 The Bank's powers, including the authority to issue general directives concerning credit policy, are vested in a Board of Governors that sits at the top of the Bank's organisational structure.2 The Board meets once a year 'to review the implementation of past policy decisions and to deliberate on new policy issues initiated by them or by the institution's management'.3

4.4 Each member country is represented on the board by a governor or alternate governor who exercises the voting powers of his or her country. Governors are nationals of their respective member states and are expected to be persons of the highest competence with wide experience in economic and financial matters. Australia's membership arrangements for the Group would include the Treasurer being Australia's Governor to the Bank.4

4.5 Each AfDB member country has an equal number of basic votes in addition to a number of votes proportionate to its paid-in shares. No member country has veto power and, according to the Bank, board decisions are 'generally made through discussion and consensus rather than through the exercise of voting powers'.5

1 African Development Bank, Distribution of voting power by executive director Statement of voting power as at 31 May 2013, http://www.afdb.org/fileadmin/uploads/afdb/Documents/Boards- Document7/AfDB%20Statement%20of%20Voting%20Power%20at%2031%20May%202013. pdf (accessed 18 July 2013).

2 Article 29 of Agreement Establishing the African Development Bank as amended.

3 The Treasury and AusAID, Submission 2, p. 9.

4 The Treasury and AusAID, Submission 2, p. 15.

5 African Development Bank Group, 'Board of Governors', http://www.afdb.org/en/about- us/structure/board-of-governors/ (accessed 18 July 2013).

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4.6 On the recommendation of the Board of Directors, the Board of Governors elects a president who must be an African.6 The President chairs the Board for a five-year term that is renewable only once; is the Chief Executive and legal representative of the Bank; and conducts the Bank's business.7

4.7 The Board of Governors delegates its authority to a 20-member Board of Directors, which oversees the daily general operations of the Bank and ultimately approves all projects, policies and strategies. Governors of the regional members elect thirteen directors and governors of the non-regional members elect seven.8 The Board of Directors functions in continuous session at the principal office of the Bank and meets as often as the business of the Bank requires.9

4.8 The AfDB President is also the President of the Fund as well as the Chairman of the Board of Directors. He or she 'determines the organizational structure, functions and responsibilities as well as the regional and country representation offices'. The President proposes to the Board of Directors the appointment of the Vice-Presidents who assist in the day-to-day management of the Bank Group.10

History

4.9 The inaugural meeting of the Bank's Board of Governors was held from 4-7 November 1964 in Lagos, Nigeria, and the headquarters was opened in Abidjan, Côte d’Ivoire, in March the following year. Since it commenced operations in July 1966, the Bank has experienced some challenges as its President, Mr Donald Kaberuka, explained to a non-regional governors forum in 2010:

…the Bank is also the only MDB in the 1990s to have lost its AAA credit rating because of weak financials. It has taken almost ten years to rebuild the reputation and solid nature of the institution, from its financial perspective. The bank got back all the ratings in 2003. Since then your

6 African Development Bank Group, 'About the President', http://www.afdb.org/en/about- us/structure/presidents-corner/about-the-president/ (accessed 18 July 2013).

7 African Development Bank Group, 'About the President', http://www.afdb.org/en/about- us/structure/presidents-corner/about-the-president/ (accessed 18 July 2013).

8 Article 33 of Agreement Establishing the African Development Bank as amended.

9 Article 34 of Agreement Establishing the African Development Bank as amended; and Multilateral Organisation Performance Assessment Network, Assessment of Organisational Effectiveness and Reporting on Development Results, African Development Bank, Volume 1, December 2012, p. 2.

10 African Development Bank Group, 'About the President', http://www.afdb.org/en/about- us/structure/presidents-corner/about-the-president/ (accessed 18 July 2013).

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shareholder support, the single biggest influencing factor for rating agencies, has given us the capacity to serve our institution.11

4.10 AusAID explained that the Bank's unsustainable lending policies and practices was the major factor underpinning the Group's loss of its AAA credit rating. It explained:

The Group was extending non-concessional loans to uncreditworthy member countries in order to spur their economic growth. As these loans were often not repaid, this created a high amount of debt within the Group.

In 1995, the Bank elected Omar Kabbaj, a Moroccan financial official, as the new President. President Kabbaj moved swiftly to implement key fiscal and managerial reforms, most notable of which was limiting the number of countries accessing non-concessional lending, in order to turn around the Group’s indebtedness. The Group’s credit rating was restored to AAA in 2001.

The current President, Mr Donald Kaberuka, elected in 2005, has continued his predecessor’s reform program.12

4.11 At the moment, the Bank operates from its temporary relocation agency in Tunis, Tunisia, having moved from its official headquarters in Abidjan in 2000 due to political upheaval in that country. The Group intends to move back to Abidjan in the near future.13

Internal mechanisms for good governance 4.12 The Treasury and AusAID noted that the Group had undergone 'a significant process of reform over the past decade' and was considered 'a strong performer in several key international reviews'.14 Indeed, the Bank underwent major structural and operational changes before 2008 including decentralisation of activity to new field offices and a restructuring of key departments including expanded divisions working on governance and the private sector.15 According to Mr Davies, the Development Policy Centre, ANU:

Under President Kaberuka, the AfDB has clarified its strategy, adopted a more results-oriented approach, cleaned up its loan portfolio, put in place

11 Donald Kaberuka, President, African Development Bank, Closing remarks at the non-regionals governors’ forum on the sixth general capital increase of the African Development Bank, Cape Town, 24 February 2010, paragraph 5, http://www.afdb.org/fileadmin/uploads/afdb/Documents/Generic- Documents/GCI%20Closing%20Remarks_President%20Kaberuka.pdf (accessed 18 July 2013).

12 Answer to question on notice, question no. 1(b), at Appendix 2.

13 African Development Bank Group, 'History', http://www.afdb.org/en/about-us/history/ (accessed 18 July 2013).

14 Submission 2, p. 1.

15 House of Commons, International Development Committee, DFID and the African Development Bank, Seventh Report of Session 2007-08, Volume 1, 8 May 2008, p. 6.

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good systems for assessing its operational and organisational effectiveness, better aligned its country operations with national development strategies, made good progress toward decentralisation, begun to play a much more prominent role in regional and global policy forums and dramatically improved transparency.16

Transparency and accountability

4.13 Currently, the Bank has in place a number of mechanisms to promote accountability and transparency. They include:

 The Office of the Auditor General—responsible for 'planning, organizing,

directing and controlling a broad, comprehensive program of auditing both internally and externally including without limitation all projects and programs of the Bank group'. The Office provides all levels of management with periodic, independent and objective appraisals and audits of financial, accounting, operational, administrative and other activities, including identifying possible means of improving accountability, efficiency of operations and economy in the use of resources.17

 The Operations Evaluation Department (OPEV)—an independent unit that 'undertakes evaluations of completed projects, sector policy reviews, country assistance evaluations, business process reviews and other studies relevant to the Bank's policies, operations and results'. The department also oversees the complete evaluation system within the Bank; internal and external communication of evaluation findings and lessons; and promotion of evaluation capacity development.18

 An Independent Review Mechanism (IRM)—provides people adversely affected by an AfDB's financed project with an independent mechanism 'through which they can request the Bank to comply with its own policies and procedures'.19

4.14 In 2008, the Group established a Quality Assurance and Results Department which led 'to the introduction of a new development results framework in 2011, new reporting tools at the organisation-wide level and new quality at entry processes'.20 In 2011, as part of the AfDB Group's effort to sharpen its focus on results, the Bank

16 Submission 5, p. 7.

17 African Development Bank Group, 'Auditor General's Office', http://www.afdb.org/en/about- us/structure/auditor-generals-office/ (accessed 18 July 2013).

18 African Development Bank Group, 'Operations Evaluation', http://www.afdb.org/en/about- us/structure/operations-evaluation/ (accessed 18 July 2013).

19 African Development Bank Group, 'Independent Review Mechanism (IRM)', http://www.afdb.org/en/about-us/structure/independent-review-mechanism-irm/ and 'About the IRM', http://www.afdb.org/en/about-us/structure/independent-review-mechanism-irm/about- the-irm/ (accessed 18 July 2013).

20 The Treasury and AusAID, Submission 2, p. 7.

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launched the first of its now annual Development Effectiveness Reviews.21 The reviews are a comprehensive examination of the Bank's performance and although the focus is on the effectiveness of the institution's delivery of aid, it also covers essential corporate governance issues central to the Bank's operations.

4.15 The first review acknowledged that transparency was one of the most basic principles of good governance, which underpinned all of the Bank's operations. It noted that the Bank had endorsed the International Aid Transparency Initiative (IATI), which 'seeks to make it easier for the public to access, use and understand information on international aid'.22 The review indicated that the Bank would work towards publishing information on all its operations in accordance with the IATI's standard.23

4.16 The most recent Annual Development Effectiveness Review likewise acknowledged the central importance of the Bank being able to demonstrate integrity, transparency and its accountability. It reported that the Bank had overhauled its disclosure policy in line with international best practice. The review also announced that the Bank had adopted a new framework for engaging with civil society organisations, which had been developed through 'extensive consultations'.24

Fraud and anti-corruption

4.17 The Bank is a member of the Joint International Financial Institutions Anti-Corruption Task Force and has signed the Uniform Framework for Preventing and Combating Fraud and Corruption.25 It has an Integrity and Anti-Corruption Department, whose overriding mandate is 'to undertake unhindered investigations into

21 See for example, US Department of the Treasury, Justification or Appropriations, FY 2014 Budget Request, p. 21.

22 IATI is a voluntary, multi-stakeholder initiative that seeks to improve the transparency of aid in order to increase its effectiveness in tackling poverty. The Initiative comprises 'donor and developing countries, civil society organisations and other experts in aid information who share the aspirations of the original IATI Accra Statement and are committed to working together to increase the transparency of aid'. See http://www.aidtransparency.net/about#sthash.JusZCEBF.dpuf (accessed 16 July 2013).

23 African Development Bank Group, Annual Development Effectiveness Review 2011, pp. 41-42.

24 African Development Bank Group, Annual Development Effectiveness Review 2013, p. 51.

25 On 18 February 2006, the leaders of the African Development Bank Group, Asian Development Bank, European Bank for Reconstruction and Development, European Investment Bank Group, International Monetary Fund, Inter-American Development Bank Group and the World Bank Group agreed 'to establish a Joint International Financial Institutions Anti-Corruption Task Force to work towards a consistent and harmonized approach to combat corruption in the activities and operations of the member institutions'. http://siteresources.worldbank.org/INTDOII/Resources/FinalIFITaskForce Framework&Gdlines.pdf (accessed 18 July 2013).

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allegations of fraud, corruption and misconduct within the Bank and Bank-financial activities'.26 Its role is both reactive and proactive.27

4.18 This Department was originally created as a division within the Auditor General's Office but has gone through substantial changes over the last few years. In 2010, the unit was upgraded to a Department that reports directly to the AfDB President and to the Board of Directors. According to a progress report, these changes to the Department have:

…not only heightened its visibility and weight within the organization, but also reinforced its independence. In addition, standard procedures for the conduct of investigations have been introduced and IT forensics capabilities significantly improved.28

4.19 When it comes to business integrity and anti-bribery efforts in Africa, the Bank regards itself as a major contributor to good governance and anti-corruption on the continent. It has partnered with the OECD to 'strengthen anti-bribery frameworks and practices and promote business integrity to provide an attractive environment for investment and sustained growth in the African region'.29An OECD publication observed:

The AfDB is well placed, with its extensive knowledge of and experience of the African States, to meet its goal of positioning itself as the centre of excellence for good governance and a leader in anti-corruption efforts on the continent.30

The Treasury and AusAID noted that the Group has 'developed robust fraud and anti-corruption policies'.31

26 African Development Bank Group, Integrity and Anti-Corruption Department IACD, Integrity and Anti-Corruption Progress Report 2009-2010, pp. 9-10, http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/Integrity%20and%20Anti -Corruption.pdf (accessed 18 July 2013). See also The Treasury and AusAID, Submission 2, p. 6.

27 African Development Bank Group, Integrity and Anti-Corruption Department IACD, Integrity and Anti-Corruption Progress Report 2009-2010, p. 9, www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/Integrity%20Anti- Corruption.pdf (accessed 18 July 2013).

28 African Development Bank Group, Integrity and Anti-Corruption Department IACD, Integrity and Anti-Corruption Progress Report 2009-2010, p. 11, http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/Integrity%20and%20Anti -Corruption.pdf (accessed 18 July 2013).

29 OECD, Stocktaking of Business Integrity and Anti-Bribery Legislation, Policies and Practices in Twenty African Countries, 2012, p. 13.

30 OECD, Stocktaking of Business Integrity and Anti-Bribery Legislation, Policies and Practices in Twenty African Countries, 2012, p. 25.

31 Submission 2, p. 6.

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External reviews and assessments 4.20 As well as the Bank's internal mechanisms to guard against inappropriate corporate behaviour, a number of overseas countries or organisations have conducted their own assessment of the Bank's performance including its governance structure.

UK Department for International Development

4.21 In March 2011, the UK Department for International Development (DFID) undertook a multilateral aid review. It rated the Fund as strong on organisational strengths which included a number of factors that go to good governance including:

 public financial management that helps clients;

 good consideration of cost-effectiveness in project design;

 board and management that is effective at controlling administrative budgets;

 an independent evaluation department, whose evaluations are often acted on;

 though only 60 per cent of budget support is disbursed on schedule, predictable, transparent financing is generally the norm;

 extensive financial policies; and

 systematic and extensive publication of documentation. 32

4.22 The review also referred to the Fund's Independent Review Mechanism (IRM) that, as noted earlier, provides an avenue for complaints and redress as a safeguard for the interests of local people and communities.33 It found that it was 'very likely' that the Fund, the Bank's concessional lending arm, had made 'significant and demonstrable progress against ambitious reform agenda over the last three years'.34 The UK's multilateral review rated the ADF, highly for its organisational effectiveness and value for money.35

Australian Multilateral Assessment

4.23 In March 2012, the Australian Multilateral Assessment (AMA) found that the AfDB’s Board provided 'adequate oversight of its policies and operations'. With regard to the Bank's independent Operational Evaluation Department, the AMA noted its 'strong and credible oversight of AfDB's use of monitoring and evaluation systems'. The AMA assessed the Bank's first annual development effectiveness review, as 'a credible report and an exercise in openness and transparency'.36 Although it found that

32 Department for International Development (DFID), Multilateral Aid Review, Ensuring maximum value for money for UK aid through multilateral organisations, March 2011, p. 164.

33 Department for International Development (DFID), Multilateral Aid Review, Ensuring maximum value for money for UK aid through multilateral organisations, March 2011, p. 58.

34 Department for International Development (DFID), Multilateral Aid Review, Ensuring maximum value for money for UK aid through multilateral organisations, March 2011, p. 164.

35 See Independent Review of Aid Effectiveness, April 2011, p. 141.

36 AusAID, Australian Multilateral Assessment, March 2012, p. 57.

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the Bank had 'an organisation-wide system for monitoring and evaluating program performance', it was of the view that the Bank could 'evaluate a higher percentage of its programs'. It also reported that since 2005, AfDB had 'enjoyed very strong and transformative leadership under its President'. Even so, the AMA suggested that more improvements in human resource management were needed, 'particularly with transparency and the meritocracy of appointment processes,

performance-incentive structures and career progression'.37

4.24 On the whole, it rated the Bank as strong for clear strategy and plans; satisfactory as an effective governing body; strong for its use of monitoring and evaluation systems and strong for effective leadership and human resource policies.38

In respect of transparency and accountability, the AMA found that although the AfDB was a signatory to the International Aid Transparency Initiative (IATI), the Bank was not yet fully compliant.39

4.25 In this regard, it should be noted that recently the AfDB published data to the IATI detailing its public and private sector activities and provided 'precise geocoded information'. According to the IATI, the AfDB became 'the first multilateral development bank to provide this level of detail in IATI data'.40 It observed further that the Bank's decision to publish the data reflected its 'commitment to transparency and accountability in the use of its resources…'41

4.26 The AMA was also of the view that the AfDB allocated resources 'in accordance with a transparent performance-based allocation formula'. It stated further that some of the Bank's programs focused on 'strengthening transparency and accountability in the management of public resources, at country, sector and regional levels'.42 In addition, the AMA noted that the AfDB is a party to the cross-debarment

agreement with the other multilateral development banks. Under this agreement, the banks mutually enforce each other's debarment actions, with respect to four harmonized sanctionable practices—corruption, fraud, coercion, and collusion.43

37 AusAID, Australian Multilateral Assessment, March 2012, pp. 57-58.

38 AusAID, Australian Multilateral Assessment, March 2012, p. 57.

39 AusAID, Australian Multilateral Assessment, March 2012, p. 59.

40 International Aid Transparency Initiative, 'African Development Bank publishes to IATI', http://www.aidtransparency.net/news/african-development-bank-publishes-to-iati (accessed 16 July 2013).

41 International Aid Transparency Initiative, , 'African Development Bank publishes to IATI', http://www.aidtransparency.net/news/african-development-bank-publishes-to-iati (accessed 16 July 2013).

42 AusAID, Australian Multilateral Assessment, March 2012, p. 59.

43 AusAID, Australian Multilateral Assessment, March 2012, p. 59 and Agreement for Mutual Enforcement of Debarment Decisions Among Multilateral Development Banks, http://crossdebarment.org/oai001p.nsf (accessed 16 July 2013).

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4.27 In summary, the AMA gave the Bank a strong rating for routinely publishing information; very strong for clear process for resource allocation; satisfactory for 'strong accountability mechanisms' and for promoting transparency of partners.44

Multilateral Organisation Performance Assessment Network (MOPAN)

4.28 According to both its 2009 and 2012 surveys, MOPAN found that respondents rated the Bank strong on half the questions related to financial accountability and adequate on the remainder. In 2012, it noted that respondents commended the Bank in particular for its internal and external audit processes.45 Indeed, MOPAN noted that the Bank's 'good standing as a financial institution' was one of its strong areas.46 The survey found that the Bank was noted for 'the transparency of its resource allocation decisions'.47

4.29 In important areas of corporate governance, the Bank received strong ratings for its policies and practices for audit and combating corruption. For example, with regard to the Bank's standing on anti-corruption, MOPAN assessed the Bank's policy and guidelines to combat fraud and corruption as very strong. It stated:

The Bank's efforts are guided by the Bank Group Policy on Good Governance and the corporate-approved Guidelines for Preventing and Combating Corruption and Fraud. The Bank has also put into place several mechanisms for addressing and sanctioning fraudulent behaviours from either Bank staff or clients, and has a policy of 'zero tolerance' in this regard for staff members and executive directors, which is articulated in its Code of Conduct. The Bank's Governance Strategic Directions and Action Plan for 2008-2012 lays out the Bank's plans for combating corruption at country, sector and regional levels, as well as in the Bank's adherence to the Uniform Framework for Preventing and Combating Fraud and Corruption, which consists of an agreement between several International Financial Institutions (FIs) aimed at enforcing a 'unified and coordinated approach to fight corruption and prevent it from undermining the effectiveness of their work.48

44 AusAID, Australian Multilateral Assessment, March 2012, p. 59.

45 Multilateral Organisation Performance Assessment Network, Assessment of Organisational Effectiveness and Reporting on Development Results, African Development Bank, Volume 1, December 2012, p. 5.

46 Multilateral Organisation Performance Assessment Network, Assessment of Organisational Effectiveness and Reporting on Development Results, African Development Bank, Volume 1, December 2012, p. 19.

47 Multilateral Organisation Performance Assessment Network, Assessment of Organisational Effectiveness and Reporting on Development Results, African Development Bank, Volume 1, December 2012, p. 35.

48 Multilateral Organisation Performance Assessment Network, Assessment of Organisational Effectiveness and Reporting on Development Results, African Development Bank, Volume 1, December 2012, p. 40.

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4.30 In activities such as risk management, procurement and contract management processes, the Bank was considered as adequate including procedures for responding and following up on irregularities.49 Overall, MOPAN found that the Bank:

 had transparent systems in place for the allocation of resources (survey

respondents believed that the Bank generally follows the criteria established for resource allocation);

 had introduced some tools to facilitate the implementation of results-based budgeting, but this has not yet become standard practice in the Bank and there remains considerable room for improvement in linking disbursements to results achieved;

 had sound practices and processes in place for financial accountability with

external and internal audits seen as strong and adhering to international standards—the Bank's policies and guidelines for combating fraud and corruption were to be commended; and

 made use of performance information to improve its operations, but could

improve its systems for tracking the implementation of evaluation recommendations that are accepted by management and reported to the Board.50

Continuous improvement

4.31 While the various reviews were generally satisfied with the Bank's governance arrangements, they identified areas where they thought the Bank could improve—the percentage of programs evaluated, human resource management, linking disbursements to results and tracking implementation of evaluation recommendations. In this regard, Mr Davies expressed concern that the 'generally positive aura around the institution will deflect attention from some important areas of continuing weakness'.51 He stated that a careful reading of multiple recent assessments suggested there were still substantial problems in three areas—human resources management, decentralisation and business processes and practices. Mr Davies noted further:

The Bank suffers from high staff turnover and high vacancy rates, has devolved people but not much authority to its 34 field offices, and is experiencing continuing problems with project implementation which manifest themselves in delayed start-ups, slow disbursement rates and client dissatisfaction with red tape.52

49 Multilateral Organisation Performance Assessment Network, Assessment of Organisational Effectiveness and Reporting on Development Results, African Development Bank, Volume 1, December 2012, pp. xiii and 88.

50 Multilateral Organisation Performance Assessment Network, Assessment of Organisational Effectiveness and Reporting on Development Results, African Development Bank, Volume 1, December 2012, p. x.

51 Submission 5, pp. 8-9.

52 Submission 5, p. 11.

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4.32 Although Mr Davies acknowledged that the Bank was a far more capable institution than it was in 2005, he warned of the risk of ignoring or downplaying problems and of the need to address them.53 In this regard, member countries have an important role in monitoring and encouraging, even pressuring, the institution to improve its performance.

Shareholders' transparency and accountability mechanisms 4.33 The number of non-regional countries willing to contribute to the Group is testimony to the value they place on working with the Bank.54 The Treasury and AusAID observed that donors demonstrated their confidence in the Group:

…through a 200 per cent General Capital Increase in 2010, taking its capital base to some US$100 billion; and a 10.6 per cent increase in the AfDF's most recent replenishment, AfDF-12 (2011-2013), with donors agreeing to additional resources of US$9.5 billion.55

4.34 Thus donors have a vested interest in the Bank performing well. In this regard, they are able to monitor, review and assess the Bank's governance and financial and operating policies and practices. The committee has mentioned the UK multinational review, which provided a means of external appraisal of the Bank's policies and performance.

4.35 The committee has also referred to the three-yearly replenishments for the ADF. Each one of which has been preceded by comprehensive consultation with donors, which provided them with the opportunity to review the operation of the Fund.56 For example, during negotiations for the twelfth replenishment, donors endorsed a policy framework which was intended to deepen 'existing strategic priorities of infrastructure, governance, regional integration and support for fragile states…'57

4.36 There is also a mid-term review of the replenishment process, which takes place approximately eighteen months after a replenishment enters into force.58 During the replenishment and general capital increase consultations, donor countries are well placed to push for reforms to both the Group's practice and policies. For example, when the Bank was experiencing difficulties during the mid-1990s, donor members

53 Submission 5, p. 11.

54 See also Joel Negin and Glenn Denning, Study of Australia's approach to aid in Africa, commissioned study as part of the Independent Review of Aid Effectiveness, Final Report, 21 February 2011, p. 31.

55 Submission 2, p. 7.

56 UK House of Commons Hansard, Debate, Overseas Development and Co-operation, 3 February 1992, vol 203, cc75-102.

57 Outcome of the ADF-12 Replenishment Consultations, 22 October 2010.

58 AfDB, 'Frequently asked Questions on ADF', answer to question 3, http://www.afdb.org/fileadmin/uploads/afdb/Documents/Generic- Documents/FAQS%20on%20ADF%20Eng%20_2_.pdf (accessed 16 July 2013).

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directed their efforts towards strengthening the Bank's governance and financial and operating policies. According to the Canadian International Development Agency:

Canada was among the most active and militant of the non-regional countries in holding back agreement on the replenishment until improvements were made in these areas. Indeed, rapid progress on the institutional issues was made after the arrival of a new President, in September, 1995, and this paved the way for the completion of the replenishment.59

4.37 The AfDB's largest non-regional shareholder, the US, noted that during the recent GCI negotiations, it was able to champion a number of key institutional reforms, which included:

…adoption of a comprehensive income model to ensure financial sustainability, budget discipline, and steady transfers to the AfDB Fund, increased transparency and disclosure, stronger risk management, and a heightened focus on results.60

4.38 According to the US Treasury, these reforms improved the AfDB's 'institutional effectiveness by narrowing its strategic focus and strengthening controls on project quality'.61

Australia's role

4.39 As a non-regional member, Australia would also be able to have some involvement in holding the Bank to account and driving reforms where needed. Mr Davies was of the view that Australia, if it proceeded to join, could be part of the process of addressing problems 'through its role in overseeing the work of the institution'.62 In this context, AusAID informed the committee that as a shareholder Australia could contribute:

…to strengthening discipline and accountability on the AfDB Board and, in partnership with like-minded members, continue to push for deepening of institutional reforms and improvements in operational and development performances.63

59 Canadian International Development Agency, African and Asian Development Funds: A case Study of Policy Dialogue, 2009.

60 According to the US Department of the Treasury, Justification or Appropriations, FY 2014 Budget Request, p. 20, US contributions to the sixth General Capital Increase 'helped the Bank to nearly triple its lending from an average of $1.8 billion' before the increase to over $5 billion annually by 2011. See US Department of the Treasury, Justification or Appropriations, FY 2014 Budget Request, p. 20.

61 US Department of the Treasury, Justification or Appropriations, FY 2014 Budget Request, p. 20.

62 Submission 5, p. 11.

63 AusAID, Proposal for Australia to Pursue Membership of the African Development Bank and the African Development Fund, Consultation Paper, July 2012, p. 20. See also the Treasury and AusAID, Submission 2, p. 3.

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4.40 Mr Paul Griffiths, AusAID, told the Joint Committee on Treaties that Australia would be able to monitor the Bank's continuing performance by engaging on three levels:

 Board of Governors' meetings—the level of exchange and interaction and

influence would depend on Australia's subscription to the Bank;

 regular high-level meetings, where Australia would be able to exchange views

and resolve differences, which would provide Australia with the opportunity to influence policies and set future priorities for collaboration;64 and

 operational-regional meetings which would provide Australia with the

opportunity to converse with Bank staff and discuss country-level and regional level policies.65

4.41 Australia would also be able to contribute to improving the performance of the Bank through its bilateral development activities, such as co-financed projects complementing those of the AfDB, its development policy expertise and its diplomatic network in Africa.66

4.42 While Australia would be only one voice among the many other Bank members, all members have a clear interest in sound governance. Individually and jointly, they provide another level of scrutiny and an impetus for the Bank to improve its performance.

4.43 Mr Shaun Anthony, Department of the Treasury, explained further that the extent to which Australia could exert influence on the Bank's Board:

…would all be dependent upon which constituency we join and how large the shareholding is, as well as our activities at the bank and our contributions to the concessional arm.67

4.44 Australia's contribution to encouraging good governance would also depend on the government's preparedness to become involved with the Bank's Board. Mr Davies observed that:

Provided Australia's governor does in fact regularly engage with his or her counterparts from the bank’s regional member countries, this engagement would constitute a new and important line of diplomacy.68

64 In its response to question on notice no 6, AusAID explained further 'through the Board of Directors, which has 20 directorships that represent the Bank’s (currently) 78 member countries through constituencies, and guides the Bank’s policies, projects, and programs. Relevant factors in negotiating to join a particular constituency are shareholding sizes, access to executive positions and consistent development priorities'. See Appendix 2.

65 Joint Standing Committee on Treaties, Committee Hansard, 26 November 2012, p. 4.

66 Answer to question on notice no 6 at Appendix 2.

67 Joint Standing Committee on Treaties, Committee Hansard, 26 November 2012, p. 5. See also answer to question on notice no. 6 Appendix 2.

68 Submission 5, p. 18.

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4.45 In this regard, Mr Davies noted the possible appointment of the Treasurer as governor and the Minister for International Development (if there were to be such a minister) as the alternate governor. He was of the view, however, that it was unlikely that the Treasurer would be in a position to attend the annual meetings regularly and posed a second and 'better option'—appoint the Minister for International Development as governor and AusAID's Director General as alternate. He explained:

…it is the aid agency that has the strongest stake in the operations of the institutions, and which has the greatest capacity to service government engagement with those institutions. There is little incentive for the Treasury to allocate substantial time and effort to servicing Australian engagement in the day-to-day oversight of the AfDB. In the event that there were no ministry for international development, it would be best to nominate the foreign minister as governor and the Director General of AusAID as alternate, simply because it will be important that person nominated as governor is in general willing and able to attend the bank's annual meetings.69

4.46 In response to the committee's request for AusAID's view on this matter, AusAID observed that the Bank's main objective is 'to promote sustainable economic development and social progress in regional member countries by mobilising and allocating financial resources'. It reasoned that:

Given that economic and financial management, as well as legislative responsibility under the various development bank Acts, lies within the Treasury portfolio, it is appropriate for the Treasurer to be Australia’s Governor to the AfDB. This practice is consistent with the Treasurer being Australia’s Governor to other multilateral development banks (such as the ADB, EBRD and World Bank).70

AusAID informed the committee that the Treasurer would 'work closely with the Minister for Foreign Affairs and the Minister for International Development in progressing AfDB matters'.71

4.47 The committee draws the government's attention to Mr Davies' suggestion about nominating a minister who is closely connected to Australia's overseas development assistance as governor and the Director General of AusAID as alternate. In this regard, the committee notes AusAID's assurance that the Treasurer, who would be Australia's Governor on the Bank Board, and the Minister for Foreign Affairs would collaborate on promoting and supporting the work of the Bank. Also, as noted above, there are many other avenues through which the Minister for Foreign Affairs, the Director-General of AusAID and diplomatic staff more generally can support and promote Australia's interests through the AfDB Group.

69 Submission 5, p. 21.

70 Answer to question on notice no. 8 at Appendix 2.

71 Answer to question on notice no. 8 at Appendix 2.

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4.48 Even so, while substantial benefits are likely to flow from Australia's investment in the AfDB Group, Australia will need to have adequate and appropriate resources on the ground to ensure that every advantage is gained from its membership of the Group.

Conclusion 4.49 The committee has considered both the costs of Australia's membership of the AfDB Group and the governance of that institution. Clearly, the Bank is held in high regard by its current member countries and by independent assessments of the Bank's performance and governance arrangements. In the committee's view, Australia's investment in the AfDB Group should provide a significant return. Membership of the Bank would not only be a cost effective way to help Australia realise its development assistance goals in Africa but would also serve Australia's broader diplomatic, economic, trade and national security objectives throughout the region.

Recommendation

4.50 The committee recommends that the bill proceed.

Senator the Hon Ursula Stephens

Chair

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Coalition senators’ dissenting report Coalition senators do not support the Bill 1.1 It is important at the outset to note that opposition to the Bill is neither a reflection of the African Development Bank (ADB) nor is it an antithetical view of the need to improve cooperation with our aid partners to further the development outcomes of the African continent.

1.2 Coalition senators oppose the Bill on the grounds that the Government’s strategic priorities for Australia’s aid program, and its track record of poor economic management of the same, are far from commendable.

1.3 We hold no dissention of the view that the ADB is a highly regarded institution that has some remarkable achievements in improving the lives of many Africans since its inception. The growth of the bank’s membership to now include a number of the world’s largest economies, including the United States and the United Kingdom, is testament to these accomplishments, as is the bank’s steadfastness in returning to a AAA credit rating just over a decade ago. Many Africans have witnessed an improvement in their health and education standards and a reduction in inequality as a result of the bank’s projects.

1.4 The coalition supports the Millennium Development Goals that go to the core of much of the ADB’s operations but more needs to be done if Africa is to make valuable inroads in this area. In this regard, Australia will always stand ready to offer assistance to those that are in need and to the causes and aims we believe in.

1.5 Coalition senators believe, however, that providing support cannot come at any cost which is the case with the government’s proposed membership of the ADB Group.

1.6 Australia’s membership of the group would require an initial contribution of $249 million over three years at a time when the government is moving further away from the bi-partisan commitment of 0.5% of GDP to be provided as official development assistance (ODA). This quarter of a million dollars is just the start with additional ongoing payments necessary from 2014, the size of which are as yet undetermined.

1.7 The reality is that money is being borrowed from one country to be given to another. The coalition does not believe this is the correct way to go about membership of the ADB.

1.8 Only with a strong economy can we afford to provide the type of assistance that we should strive to achieve through membership of the ADB. Sadly, the Labor government cannot lay claim to such an economy.

1.9 Coalition senators believe that before further diluting our aid budget, more must be done to ensure current allocations are delivered the way they should be. As it stands, significant deficiencies remain.

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1.10 AusAID is not meeting its performance benchmarks when it fails to address the poor conditions at Daru Hospital. The sale of Australian education scholarships for profit by so-called officials in Afghanistan is not evidence of our aid money being appropriated properly. Performance benchmarks are not being met when AusAID pushes money out the door in order to reach its expenditure targets.

1.11 At a time when the pressure on the nation’s finances is so great, the government should not be locking Australia into additional commitments at a cost of hundreds of millions of dollars. Coalition senators believe the focus right now should be on what is essential, not what is desirable.

1.12 Dissention to this report should not come as a surprise. In his 2012-13 budget-in-reply speech, the leader of the opposition, Hon Tony Abbott MHR, questioned why the Gillard Government was spending millions of dollars to join the ADB in an environment where it is actually borrowing money to support its ODA. Alarmingly, a proportion of our aid budget is even being spent on the off-shore processing of illegal boat arrivals.

1.13 Once again, the coalition has no objection to the fine work undertaken by the ADB and is similarly fully cognisant of the challenges that confront many African nations.

1.14 The coalition's objection centres on the fact the government has mismanaged the aid budget to the point that the time is not right to spread our already thinning ODA even further. A more appropriate time to consider the not insignificant cost of membership will only come when the nation's finances improve and when our aid budget is used most effectively.

1.15 Coalition senators oppose the Bill.

Senator Alan Eggleston Senator David Fawcett

Deputy Chair

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Additional Comments

Senator Lee Rhiannon for the Australian Greens

Introduction 1.1 The African Development Bank Bill 2013 enables Australia to become a member of the African Development Bank Group by authorising the payments required to subscribe to membership shares in the African Development Bank and meet membership and ongoing subscriptions to the African Development Fund (the AfDB Group). The third entity in the African Development Bank Group, the Nigeria Trust Fund, has not been considered in this inquiry.

1.2 This inquiry has examined the purpose and provisions of the African Development Bank Bill 2013 with particular attention to the substantial financial and human resources that must be provided by the Commonwealth Treasury and the Australian Agency for International Development (AusAID) to support Australia's engagement with the AfDB Group.

1.3 The committee has also considered the effectiveness of the African Development Bank and African Development Fund group's governance structures.

1.4 The additional comments to this report provided below give consideration to the work of the African Development Bank and Australia’s potential membership of this organisation in the context of the United Nation's eight Millennium Development Goals.

1.5 As the MDGs unite international development efforts around the single focus of tackling poverty they provide a useful frame for this assessment.

The Greens 1.6 The Australian Greens believe Australia has a responsibility to contribute to long term development that is aimed at eliminating global poverty and enhancing self-reliance and community empowerment, while facilitating positive and equitable change in the social, economic and environmental conditions for the citizens of aid-recipient countries.

1.7 Australia should work to ensure that multilateral development banks adopt programs consistent with a human rights-based approach to development; be economically and environmentally sustainable; should promote local participation and gender equality; and should enhance the political, economic and social rights of the communities affected by funded projects.

1.8 Funding for long-term aid and development through multilateral development banks like the AfDB should be directed towards enhancing self-reliance in developing nations. Affected communities should be empowered with decision-making abilities informed by free, prior and informed consent, and with transparent mechanisms ensuring a right to accountability. The facilitation of environmental, economic, and social justice should be embedded into Australia’s multilateral and bilateral aid work.

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1.9 Our aid and development dollar should never subsidise or favour Australian businesses in recipient countries. Nor should our aid funds be used to facilitate Australian businesses' claims to a developing country's natural resources or access to contracts that lead to profits being exported from the recipient country, displacement or disempowerment of local communities and workers, or environmental degradation.

1.10 While many communities benefit from aid and development projects, some large infrastructure and resource development projects can cause widespread social injustice and disempowerment. Many communities have suffered the dispossession of their land, destruction of their environments, and ruin of their livelihoods, cultures and identities as a result of aid-development projects.

1.11 The Greens note that regional development banks, such as the African Development Bank, often focus on mega infrastructure project. In 2005 the AfDB dedicated almost 40 per cent of its funds1 to large infrastructure projects, particularly in the energy and transport sectors.

1.12 While such projects may assist a country’s overall economic development people living in poverty rarely receive any direct benefits. They often face eviction, loss of access to their land and local environmental damage. Regional banks also often fail to involve local people in the projects they fund.

1.13 Australia’s involvement with the AfDB also needs to be assessed in the context of our priorities for Africa which include food security, natural resource management, water and sanitation, maternal and child health and human resource development.2

1.14 The intentions behind Australia's joining the AfDB Group have been identified as "growth in Australian commercial interests in Africa", "increased trade opportunities continent wide," and the ability for Australian firms "to bid for AfDB work in all 54 African member nations".

1.15 In short, the majority report's claim that substantial benefits are likely to flow from Australia's investment in the AfDB Group if Australia takes every advantage from its membership3, suggests the overriding reason for joining the AfDB Group is one of commercial advantage for Australian companies "via procurement opportunities and infrastructure development".4

1 AllianceSud. Swiss Alliance of Development Organisations. Regional development banks - the great unknowns. 16/12/2010. http://alliancesud.ch/en/policy/finances/regional-development- banks/?searchterm=african%20development%20bank 2

AusAID. Sub-Saharan Africa. Aust Govt. http://www.ausaid.gov.au/countries/sub-saharan- africa/Pages/default.aspx 3

Senate Foreign Affairs, Defence and Trade Committee Inquiry. African Development Bank Bill 2013 [Provisions]. Report 4 Senate Foreign Affairs, Defence and Trade Committee Inquiry. African Development Bank Bill 2013 [Provisions]. The Treasury and AusAid combined Submission.

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Cost to Australia 1.16 The Greens do not subscribe to the idea that the giving of aid and development funding should have a commercial benefit to the donor country. Aid money should be used to alleviate poverty around the world. Australia’s official mission statement on overseas aid requires that it “serves Australia’s national interests”. This approach is inconsistent with the MDGs.

1.17 The Committee report notes the “substantial benefits" of joining the AfDB Group but the report fails to quantify or describe these benefits.

1.18 The costs of joining and continuing membership costs of being a member of the AfDB are substantial.

1.19 $3.9 million has been allocated to Treasury and AusAID in the 2012-13 budget, for the preparation work to join the Group, and ongoing program engagement, which is expected to take up a substantial portion of time for a senior officer from AusAID. Ongoing membership obligations and engagement strategies is also expected to take up much time of AusAID staff from all levels.

1.20 Initial membership payments for the purchase of the maximum allowable shareholding of 1.43% in the Group total $88.2 million over 3 years from 2014-15 to 2016-17, and the one-off capital subscription is budgeted at $160.9 million for 2014-15 and 2016-17.

1.21 Subscription to the African Development Fund also requires regular three-yearly replenishments by donor countries that will be determined during each pledging round, and an emergency contingent liability of around $1.4 billion in the event of default of the bank would also be expected.

Recommendation: That the government publicly disclose details regarding the benefits of joining the AfDB and who will gain from those benefits.

The African Development Bank Group 1.22 The AfDB Group has the potential to contribute to the economic development and the social progress of African countries as a majority African-owned and run institution. Fifty-three regional African countries hold nearly 60% of the voting power and no one country has veto. There is a requirement that its President must always be African, and its operations and offices permanently reside in Africa.

1.23 The USA has the second highest voting power at 6.366%, after Nigeria with 8.739%. Non-regional countries have 40% of the voting powers.

1.24 The delegation of authority is with the Board of 20 Directors elected from member countries; of which 13 represent regional African countries. The Board oversees the daily general operations of the bank and approves all projects, policies and strategies.

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1.25 The Group's stated objective is "the sustainable economic development and social progress of the African member countries of the Bank Group".5

1.26 The concessional arm of the AfDB Group, the African Development Fund (ADF) provides concessional funding loans and grants to at least 40 Regional Member Countries for projects and programs. ADF loans are interest-free with a 50 year repayment period, including a 10 year grace period. Lines of credit have a 20 year repayment period with a 5 year grace period. 6

1.27 Despite global financial turbulence, the AfDB continues to be recognised as a strong financial institution with a recently reaffirmed AAA rating and a stable outlook.7 The Greens acknowledge a number of international reviews have found the

AfDB to exercise good governance policies and practices.

1.28 The Greens also acknowledge that the AfDB Group is recognised as an effective and efficient organisation, that its objectives concur with Australia's objectives of helping people overcome poverty and achieve sustainable development, and that it is a trusted partner of African governments.

1.29 The AfDB Group has approved loans and grants to a substantial number of projects that will bring benefits to African households and communities by providing improved access to electricity, and water and sanitation services and more health centres and schools.8

1.30 However, concerns raised by Professor Michael M Cernea, a former World Bank adviser, should be considered by Australia as it determines its involvement with the AfDB. Professor Cernea has identified internal displacement caused by conflicts or development projects as one of Africa’s major social and economic problems, raising challenges to national governments and to international donors. 9

Criticism of the AfDB

Engaging civil society

1.31 A report by the University of Iowa Center for International Finance and Development notes that “the AfDB does not have an extensive history of engaging

5 African Development Bank Group. Disclosure and Access to Information, Background. http://www.afdb.org/en/disclosure-and-access-to-information/background/ 6

African Development Bank Group. About the ADF. http://www.afdb.org/en/about-us/african- development-fund-adf/about-the-adf/ 7

African Development Bank Group 2012 Annual Report: http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/Annual%20Report%202012.pdf 8

ibid 9 Cernea, M. Safeguard Social Policies in Africa: A Continent-Wide Public Debate. 31/3/2012. The Brookings Institute. http://www.brookings.edu/research/opinions/2012/03/31-africa-development- cernea. AfDB response at: http://www.afdb.org/fileadmin/uploads/afdb/Documents/Generic- Documents/Response%20to%20Cernea%20Brookings%20on%20safeguard%20policies%20- %20DS%20reviewed.pdf

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civil-society stakeholders”. 10 This report notes that while this Bank has proposed a comprehensive policy for integrating individuals, groups, and NGOs into the various aspects of its operations, progress in this area is not occurring. Other regional banks are seen as stronger in this area than the AfDB.

Transparency

1.32 The Iowa Center has also identified that the AfDB is weak in disclosing information and transparency. It states “even if all of the information the AfDB has agreed to disclose was readily available to the public, it would not promote the effective inclusion of non-state stakeholders—such as non-governmental organizations and individuals—in its decision-making processes”. 11

Stopping damaging projects

1.33 There are limited opportunities for communities, individuals and organisations to challenge the Bank on damaging projects. AfDB’s Independent Review Mechanism (IRM) appears to have only been used once. Harmful projects cannot be stopped even after the concerned people or their representatives have filed a request. The IRM does not have to respond to lawsuits because the AfDB’s charter provides it with immunity from actions taken in municipal courts. The IRM in its current form cannot directly address problems with its own projects.12

Recommendation: The Greens support the recommendation of the Swiss Alliance of Development Organisations (Swissaid, Catholic Lenten Fund, Bread for all, Helvetas, Caritas and Interchurch Aid) calling on the AfDB to “implement its own good guidelines on transparency, the inclusion of the population and possibilities for the filing of complaints”. 13

Rights of indigenous peoples

1.34 The AfDB is currently the only multilateral development bank without a standalone safeguard policy on indigenous peoples. The Greens do acknowledge the AfDB is nearing completion of its new set of environmental and social safeguard policies which recognise the rights of indigenous peoples in some form.

1.35 However, the Forest People’s Programme has noted that the question of indigenous peoples has proven controversial at the African Development Bank as “many members of the Board and staff are resistant to the notion that indigenous communities merit specific treatment and are imbued with certain rights”.14

10 Carrasco, E et al. Global Money, the Good Life and You. The University of Iowa Center for International Finance and Development E-Book. Part 4-III: Regional Development Banks. 2009 (E-Book). http://blogs.law.uiowa.edu/ebook/uicifd-ebook/part-iv-iii-regional-development-banks 11

ibid 12 ibid 13

AllianceSud. Op cit. 14 Forest People’s Programme, African Development Bank set to introduce Indigenous Peoples standards for the first time. 29/4/2013. http://www.forestpeoples.org/topics/african-development- bank-afdb/news/2013/04/african-development-bank-set-introduce-indigenous-

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Recommendation: The Greens support the Civil Society Coalition on the African Development Bank and the Indigenous Peoples of Africa Coordinating Committee's call for a standalone safeguard policy on indigenous peoples, and for the Bank to establish a senior staff position to provide a liaison point for indigenous peoples, to convene an advisory board of indigenous peoples and to devote sufficient attention and resources to training its own staff. 15

Conclusion 1.36 Considering Australian money allocated to the AfDB will be from our overseas aid budget, Australia needs to work with other members of the AfDB to ensure its projects and programs are accountable and work to empower and educate communities in order to achieve economic development that delivers equality, human rights and independence for the peoples of Africa.

1.37 If Australia uses its membership of AfDB to foster a traditional economic development model, driven by corporate interests such as mining, resource and major infrastructure development, it will be a setback for achieving economic justice, human rights and environmental protection across Africa.

1.38 On the ground experience of major development and infrastructure projects shows that too often they are the drivers of dispossession and poverty.

1.39 As a member of this regional bank Australia should put the interests of the African people before its own “national interests”.

Senator Lee Rhiannon Greens spokesperson for International Aid & Development

15 Ndobe, S et al. Indigenous Peoples of Africa Co-ordinating Committee. Why a stand-alone Indigenous peoples Policy within the African Development Bank's Intergrated Safeguards System. June 2012. http://www.coalitionafdb.org/wp-content/uploads/2012/09/Why-A-Standalone-IP-Policy- in-AfDBs-ISS.pdf

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Appendix 1

Public submissions 1 Australia-Africa Mining Industry Group (AAMIG)

2 Treasury and AusAID

3 International Road Assessment Programme (iRAP)

4 General Electric (Australia and New Zealand)

5 Robin Davies, Development Policy Centre, Australian National University

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Appendix 2

Answers from AusAID to written questions on notice

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Senate Foreign Affairs, Defence and Trade Legislation Committee Inquiry into the provisions of the African Development Bank Bill

Questions on notice

Question 1

a) Australia would take on a contingent liability (callable capital) with the Bank as part of its initial contribution. Thus, in circumstances where the Bank was unable to meet its financial liabilities, Group shareholders, including Australia, would be called on to contribute additional capital in proportion to their shareholding to resolve the default. The Explanatory Memorandum stated that Australia's contingent liability would stand at approximately $1.4 billion (at current forecast exchange rates).1 Treasury assessed this risk of the Bank defaulting on its debts and calling on capital as low, stating that such calls were 'unprecedented'.2

 Could you explain for the committee the basis for the low risk

assessment?

Membership of the AfDB would expose the Australian Government to a contingent liability, through callable capital, of SDR 926.2 million (approximately $1.4 billion at current forecast exchange rates). Consistent with our other multilateral development bank shareholdings, this risk would be reported in the annual Budget Paper 1: Statement 8: Statement of Risks.

In the event that the AfDB defaulted on its debts, Australia would be obliged to contribute to the payments of any defaulted amount, commensurate with the size of our shareholding (of around 1.4 per cent). Treasury considers the risk of this occurring to be low. The basis of this assessment is the Bank’s AAA credit rating, prudent management and favourable independent assessments.

Those independent assessments (as cited in the joint Treasury/AusAID submission to the Senate and Joint Inquiries) have found the AfDB to be a sound institution. It regained its AAA credit rating in the early 2000s, and has the confidence of shareholders, who recently doubled its capital. It is also worth noting that no major development bank has ever called on its callable capital.

1 Australian Treaty National Interest Analysis [2012] ATNIA 23, paragraph 36; Explanatory Memorandum, General outline and financial impact, p. 3 and Submission 2, p. 10.

2 Submission 2, p. 10; Explanatory Memorandum, General outline and financial impact, p. 3.

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b) The AfDB experienced difficulties in the mid-1990s. For example the President of the Bank, Mr Donald Kaberuka, noted in 2010:

…the Bank is also the only MDB in the 1990s to have lost its AAA credit rating because of weak financials. 3

 Could you elaborate on the difficulties experienced by the Bank in the 1990s and measures now in place to guard against similar problems?

The key factor in the 1990s that led to the Group’s loss of its AAA credit rating was its unsustainable lending policies and practices. The Group was extending non-concessional loans to uncreditworthy member countries in order to spur their economic growth. As these loans were often not repaid, this created a high amount of debt within the Group.

In 1995, the Bank elected Omar Kabbaj, a Moroccan financial official, as the new President. President Kabbaj moved swiftly to implement key fiscal and managerial reforms, most notable of which was limiting the number of countries accessing non-concessional lending, in order to turn around the Group’s indebtedness. The Group’s credit rating was restored to AAA in 2001.

The current President, Mr Donald Kaberuka, elected in 2005, has continued his predecessor’s reform program. Key reforms enacted over recent years to ensure the AfDB remains an efficient and effective organisation include

 a policy of decentralisation, delegating authority to field offices to improve development effectiveness on the ground

 the development of a Human Resource Strategy which focused on acquiring and retaining quality staff and providing them with competitive benefits

 initiating an annual Development Effectiveness Review, to track the developmental impact of the AfDB

 strengthened fraud and anti-corruption procedures, including the creation of an Integrity and Anti-Corruption Division (IACD) in 2007 to combat fraud and corruption.

Donors have shown confidence in the Group, demonstrated by the most recent replenishment of the AfDF (AfDF-12), where members agreed to resources of US$9.6 billion making AfDF-12 the largest replenishment of the fund in its history.

3 Donald Kaberuka, President, African Development Bank, Closing remarks at the non-regional governors’ forum on the sixth general capital increase of the African Development Bank, Cape Town, 24 February 2010, paragraph 5, http://www.afdb.org/fileadmin/uploads/afdb/Documents/Generic- Documents/GCI%20Closing%20Remarks_President%20Kaberuka.pdf

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Question 2

a) Is there any indication of a likely seventh general capital increase in the foreseeable future?

There are no indications at this point. The timing and size of any capital increase depends on a number of factors, including the financing demands of the Bank’s developing member countries, donors’ ability and willingness to contribute further capital, and the state of the global economy.

b) The thirteenth fund replenishment round is currently underway—based on previous replenishments and early negotiations could you give the committee some idea of Australia's likely contribution; the basis on which Australia's share would be calculated; and how soon Australia would be required to make that payment?

The earliest Australia could join the Group is 2014-15, so will not be a member of the Group by the time AfDF-13 replenishment negotiations are finalised in September 2013. The 2013-14 Budget measure can be found here: http://budget.gov.au/2013- 14/content/bp2/html/bp2_expense-12.htm

Australia will make an initial contribution to the AfDF of $160 million, prescribed by Group rules. Following membership, it is envisaged Australia will make a contribution to AfDF-13. The decision regarding the size of Australia’s contribution to AfDF-13 will be made by the Government of the day and will be based on Australia’s development priorities for Africa and ongoing assessments of the Group’s ability as a development partner to carry out Australia’s aims.

Question 3

If Australia ceased to be a member of the AfDF, the Fund:

…shall return to Australia its subscription or the principal repayments derived therefrom and held by the AfDF on the date on which Australia ceased to be a member of the AfDF, except to the extent that, in the opinion of the AfDF, will be needed by the AfDF to meet its financial commitments of the AfDF Agreement.4

 Could you elaborate on the possible penalties Australia could suffer by withdrawing its membership once it has joined?

4 Australian Treaty National Interest Analysis [2012] ATNIA 23, paragraph 38.

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The mechanism by which a member of the Group may terminate its membership is outlined in the relevant Agreements.

For the Bank, refer to Chapter VI of the Agreement Establishing the African Development Bank. Article 45 specifies the financial effects; in short, the Bank would repurchase the departing member’s shares at book value on the date of termination. Note that the departing member would remain liable for its share of loans or guarantees prior to the termination date, but not after.

For the Fund, refer to Chapter VII of the Agreement Establishing the African Development Fund. Article 39 specifies the process for withdrawal. The Fund and the departing member would first seek to agree on a settlement of accounts - that is, an initial calculation and negotiation of the terms of the Fund repaying the departing member’s subscription monies. This amount may be anywhere between zero and the member’s cumulative subscriptions (or a net asset calculation). If a negotiated agreement could not be reached, Article 39 also specifies how the Fund would calculate the settlement of accounts in order to repay the subscription and principal repayments.

The Agreements do not provide for the imposition of penalties for withdrawal.

Question 4

The Development Policy Centre drew attention to additional resources that would be needed if Australia were to maintain active engagement with the Bank (see Submission 5 p. 23.) Treasury and AusAID's submission mention the $9.3 million over four years to complete the legislative and treaty process but not the specific costs of continuing engagement.

 Could you outline for the committee the anticipated annual costs, including extra staff if required, associated with being a member of the AfDB Group for both Treasury and AusAID?

The 2012-13 Budget included a measure Official development assistance — African Development Bank Group Membership, which provided $9.3 million over four years (to 2015-16) to Treasury ($1.2 million) and AusAID ($8.1 million) to undertake the legislative, diplomatic and consultative tasks required for acquiring membership of the AfDB. As noted in the 2012-13 Budget, AusAID funding for this measure will be absorbed from within existing AusAID resources, and $0.8 million of Treasury resources will be offset from the provision for expanded aid funding held in the Contingency Reserve. It is expected that this funding will continue on an ongoing basis post 2015-16 to enable Australia to maintain active engagement with the bank after completing the legislative and treaty processes.

In addition to the resources specified in the 2012-13 Budget, staff from Treasury and AusAID are also working on the joining of the Group as part of existing policy work. Australia’s diplomatic network, including our embassies in Africa, will also be expected to contribute to engagement with the AfDB as part of their normal duties.

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Question 5

AusAID's Multilateral Assessment found that although the AfDB was a signatory to the International Aid Transparency Initiative, it was not yet fully compliant.5

 Has this status changed?

At the time of the release of the AMA, the Group had not yet provided all the necessary information on its activities in member countries.

On 1 July 2013, the Group provided comprehensive data on its aid transparency practices to the IATI detailing both its public and private sector activities and precise geocoded information. The Group has now become the first multilateral development bank to provide this level of detail in IATI data.

Question 6

Mr Shaun Anthony, Treasury, explained that the extent to which Australia could exert influence on Bank's board:

…would all be dependent upon which constituency we join and how large the shareholding is, as well as our activities at the bank and our contributions to the concessional arm.6

 Are you able to elaborate on this statement including the constituency Australia is likely to join?

Influence within the Group can be exercised in several ways:

1. through the traditional avenue of the size of a shareholding - the more shares a country has, the more share of total votes the country commands within the Board of Governors, the Group’s highest decision-making body. On the Board of Governors, the Treasurer will engage and vote on the most important matters (strategy, capital structure, senior appointments).

2. through the Board of Directors, which has 20 directorships that represent the Bank’s (currently) 78 member countries through constituencies, and guides the Bank’s policies, projects, and programs. Relevant factors in negotiating to join a particular constituency are shareholding sizes, access to executive positions and consistent development priorities.

3. through the size of a country’s contributions to the AfDF, the Group’s concessional lending arm. The UK, for example, has a relatively small shareholding in the AfDB but contributes a comparatively large amount to the AfDF and is in turn able to have an influential voice in AfDF Executive Council meetings;

5 AusAID, Australian Multilateral Assessment, March 2012, p. 59.

6 Joint Standing Committee on Treaties, Committee Hansard, 26 November 2012, p. 5.

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4. through bilateral development activities, such as cofinanced projects alongside the AfDB;

5. through our development policy expertise. For example, Australia is considered an expert in areas such as dry land farming, gender equality and disability; and

6. through a country’s diplomatic network. For example, Australia’s network builds multilateral credentials generally; leverages from our United Nations Security Council membership (where 70 per cent of the Council's agenda is Africa); and generally demonstrates Australia is a credible partner and key player in Africa as trade, development, diplomatic and people-to-people links grow.

Question 7

Can Australia achieve our African aid goals without the bank? Would non-membership mean our goals are harder to achieve? How does joining the bank help achieve our goals, rather than continuing on the current path?

As a relatively small donor with a limited number of staff located in five of the 49 Sub-Saharan African countries, Australia needs to work with and through trusted partners to deliver programs and to engage at a policy level. Current partners include other bilateral donors such as the UK and Germany, non-government organisations and multilateral organisations. These partners have been selected to suit the specific context for program delivery but none have the unique combination of geographic reach, technical expertise and African identity that is offered by the AfDB.

In 2011, the Independent Review of Aid Effectiveness recommended that Australia join the Group as it would represent value for money, in terms of how best to scale up aid to Africa, and be a high-level indication of Australia’s commitment to development in Africa. Improving aid efficiency broadly involves Australia achieving the best possible quantity and quality of inputs for the best possible price and ensuring that these inputs produce the best quantity and quality of aid outputs. The AfDB has been shown to be lean and efficient, with the Quality of Official Development Assistance study by the Center for Global Development, assessing value for money in the context of ‘maximising efficiency’ (or ‘bang for the development buck’), ranking the AfDB second out of 31 bilateral and multilateral donors.

Membership of the AfDB will effectively complement Australia’s current engagement in Africa in two ways. It will firstly enable Australia to fund the work of a well-established and effective partner - through contributions to the African Development

Fund - to deliver results in areas that complement our own priorities. Australia aims to achieve positive results in Africa in the areas of food security, water and sanitation, maternal and child health, mining for development and human resource development. The AfDB’s operational priorities of infrastructure, regional integration, private sector

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development, governance and accountability and skills and technology (as outlined in the AfDB’s Long Term Strategy 2013-2022) complement Australian priorities.

Membership of the Bank will also provide Australia with a credible platform for coordinated policy engagement on key issues with partner governments and other African stakeholders. The AfDB is recognised for its strong African identity, its understanding of regional needs and its legitimacy among African governments. AfDB is a powerful voice on the African continent and provides a unique platform for discussion of solutions to Africa’s issues.

Question 8

The submission states that the Treasurer would be our representative. Wouldn’t the Foreign Minister or parliamentary secretary for aid be more appropriate? In their submission the ANU suggests the Foreign Minister should be governor and the DG of AusAID as the alternate which is apparently in line with UK practice.

The main objective of the AfDB is to promote sustainable economic development and social progress in regional member countries by mobilising and allocating financial resources. Given that economic and financial management, as well as legislative responsibility under the various development bank Acts, lies within the Treasury portfolio, it is appropriate for the Treasurer to be Australia’s Governor to the AfDB. This practice is consistent with the Treasurer being Australia’s Governor to other multilateral development banks (such as the ADB, EBRD and World Bank).

The Treasurer will work closely with the Minister for Foreign Affairs and the Minister for International Development in progressing AfDB matters.

Question 9

On page 10 to 11 of his submission, Mr Robin Davies, the Development Policy Centre ANU, suggests some deficiencies in the bank’s operation. Could you comment?

Mr Davies’ submission notes that there has been slow progress between the 2011 and 2012 Group Annual Development Effectiveness Reviews for results in human resource management, decentralisation and business processes and practices.

Human resource management

The AfDB’s region of focus comprises a large number of fragile and conflict affected countries (35 per cent of its member countries are classified as fragile or conflict affected), so recruiting and retaining people to work in such areas can be more challenging than for other MDBs such as the World Bank or Asian Development Bank.

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Earlier this year the Group released a five year HR strategy, the People Strategy 2013-2017, to transform the organisation’s workforce practices and to attract and retain the best staff to deliver the Group’s Long-Term Strategy 2013-2022. Progress on the People Strategy will be tracked quarterly by senior management and reviewed at the half way mark to adjust if necessary.

The People Strategy focuses on transforming the leadership culture, overhauling performance management, better linking performance and reward, strengthening staff engagement and increasing flexibility in employment policies.

Decentralisation

As Mr Davies’ submission notes, the Group is in the process of enacting a policy of decentralisation, delegating authority to field offices to improve development effectiveness on the ground. The process for decentralisation has been deliberate and gradual. The Group now has 34 field offices (up from 4 field offices in 2002), with around 42 per cent of projects now being task-managed at the field office level.

The Group’s Roadmap on Decentralisation was approved in April 2011, which will guide the Group’s decentralisation strategy until 2015, including the delegation of authority.

The Group must have the necessary offices, safeguards, systems and processes in place before delegating authority, and this can take some time, particularly in fragile and conflict-affected regions, where the Group has a major focus.

Business processes and practices

In 2009, the Group appointed a Chief Operating Officer to increase organisational performance and efficiency and ensure alignment of the corporate structure with the AfDB development strategy. This is not a short term process.

In its 2013 Annual Development Effectiveness Review, the Group recognised that there is still room for improvement. However, increased decentralisation and devolvement of authority should reduce red tape and increase start-up efficiencies. Membership will allow Australia to advocate for further change.

Several recent international reviews have commended the Group’s reform process. For example

 the 2012 Australian Multilateral Assessment (AMA) stated that the AfDB was “an effective organisation providing strong tangible results on the ground”, including in areas that are a focus for Australian aid in Africa

 the UK’s Department for International Development in its 2011 Multilateral Aid Review noted positively the AfDB’s ambitious reform agenda (the Medium Term Strategy 2008-2012)

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 a December 2012 Multilateral Organisation Performance Assessment Network (MOPAN7) assessment rated AfDB highly with regard to its clear mandate and commitment to transparency, its commitment to reforming its human resource management, the independence of its evaluations and its updated reporting practices (such as its use of Annual Development Effectiveness Reviews).

Question 10

Is AusAID concerned with the alleged decentralisation of the bank (see Mr Robin Davies, the Development Policy Centre ANU submission page 11)?

AusAID believes the Bank’s decentralisation policy is consistent with a drive to greater development effectiveness. See response to Question 9, above.

Question 11

Mr Robin Davies, the Development Policy Centre ANU suggests there would be substantial resource implications for AusAID at headquarters and minor implications for Treasury. Can you comment? Are our relevant African posts suitable resourced? (This questions is more or less covered in existing question four.)

Refer to Question 4.

7 MOPAN is a network of 17 donor countries with a common interest in assessing the organisational effectiveness of the major multilateral organisations they fund

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The Senate

Foreign Affairs, Defence and Trade

Legislation Committee

Defence Legislation Amendment (Woomera Prohibited Area) Bill 2013

August 2013

185

 Commonwealth of Australia 2013

ISBN 978-1-74229-906-8

Printed by the Senate Printing Unit, Parliament House, Canberra

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Members of the committee

Core members Senator the Hon Ursula Stephens, ALP, NSW (Chair) Senator Alan Eggleston, LP, WA (Deputy Chair) Senator Mark Bishop, ALP, WA Senator David Fawcett, LP, SA Senator Anne McEwen, ALP, SA Senator Scott Ludlam, AG, WA

Participating members who contributed to the inquiry Senator Nick Xenophon, IND, SA Senator the Hon David Johnston, LP, WA

Secretariat Dr Kathleen Dermody, Committee Secretary Mr Owen Griffiths, Principal Research Officer Miss Jedidiah Reardon, Senior Research Officer Ms Penny Bear, Research Officer Ms Jo-Anne Holmes, Administrative Officer

Senate Foreign Affairs, Defence and Trade Committee Department of the Senate PO Box 6100 Parliament House Canberra ACT 2600 Australia

Phone: + 61 2 6277 3535 Fax: + 61 2 6277 5818 Email: fadt.sen@aph.gov.au Internet: www.aph.gov.au/senate_fadt

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Table of Content

Members of the committee ............................................................................... iii

Report

Defence Legislation Amendment (Woomera Prohibited Area) Bill 2013 ........... 1

Coalition Senators' dissenting report ................................................................ 3

Appendix 1

Public submissions ................................................................................................ 5

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Report

Defence Legislation Amendment (Woomera Prohibited Area) Bill 2013 1.1 On 30 May 2013, the Hon Stephen Smith MP, Minister for Defence, introduced the Defence Legislation Amendment (Woomera Prohibited Area) Bill 2013 (the bill) into the House of Representatives.1 The bill passed the House on 6 June and was introduced into the Senate on 17 June. The following day, pursuant to the Selection of Bills Committee report, the Senate referred the bill to the Foreign Affairs, Defence and Trade Legislation Committee for inquiry and report by 20 August 2013.2

1.2 The bill implements the recommendations of the Final Report of the Review of the Woomera Prohibited Area, which were accepted by the government in May 2011.3 The legislation amends the Defence Act 1903 and is intended to establish

a framework for administrating access to the Woomera Prohibited Area (WPA). The bill:

 enables the minister to make the rules prescribing certain matters, including

defining the WPA and the zones to be demarcated within that area;

 creates a permit system for access and use by non-defence users;

 introduces offences and penalties for entering the WPA without permission

and for failing to comply with a condition of a permit;

 provides for compensation for any acquisition of property from a person

otherwise than on just terms; and

 provides for a cap on compensation payable to a person for loss or damage

incurred in the WPA.

The Senate asked the committee, when considering the bill, to examine land use and land management issues.4

1.3 The committee advertised the inquiry on its website, via twitter, and in the Adelaide Advertiser newspaper. It wrote to relevant ministers and departments calling for written submissions, and contacted a number of other organisations and individuals inviting them to make submissions to the inquiry.

1.4 The committee's inquiry was also advertised by the Woomera Prohibited Area Coordination Office (WPACO), a joint Australian Government and South Australian Government office established to administer non-Defence use near the Woomera

1 The Hon Stephen Smith MP, House of Representatives Hansard, 30 May 2013, p. 4518.

2 Selection of Bills Committee, Report No. 6 of 2013.

3 Explanatory Memorandum, p. 1.

4 Selection of Bills Committee, Report No. 6 of 2013, Appendix 5.

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Prohibited Area (WPA). The WPACO advised members on its mailing list, comprising some 280 individuals and organisations, about the committee's inquiry. The WPACO also included a slide about the inquiry in their consultation presentations conducted in the first week of July 2013.

1.5 The committee received 14 submissions and these are published on the committee's website.

1.6 On 5 August 2013, the 43rd Parliament was prorogued. Senate committees, however, are authorised to continue to meet and transact business, such as conduct hearings and make reports, after a prorogation if they choose to do so.5 The committee

has decided not to continue with its inquiry at this stage. In particular, some members felt that to continue with a scheduled public hearing on 7 August, during the election period, would not do justice to the inquiry. The committee therefore cancelled the hearing. Should the bill be reintroduced in the 44th Parliament and referred to the committee, the committee will resume its consideration of the legislation.

1.7 The committee thanks all those who assisted with the inquiry, particularly those who made written submissions.

Senator the Hon Ursula Stephens Chair

5 See Harry Evans and Rosemary Laing, ed., Odgers' Australian Senate Practice, 13th ed., Department of the Senate, 2012, pp. 189, 190, 332 and 487.

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Dissenting report by Coalition Senators

1.1 As the majority report indicates, Senate committees are able to continue their inquiry activities and complete reports after the prorogation of the Parliament. In this case the committee has cancelled a scheduled hearing in Adelaide and has decided to report without making findings in relation to the bill. This has meant that witnesses interested in the bill, including several existing users of the Woomera Prohibited Area, have not been able to provide evidence to the committee. Further, the conclusion of the inquiry, and the re-referral of the bill in the next Parliament, will likely result in a delay in the passage of this proposed legislation.

1.2 As the submissions from the Department of Defence, the Department of Resources, Energy and Tourism and the South Australian government have indicated, the bill will make important changes to the access arrangements to the Woomera Prohibited Area. Potentially, these reforms will have significant benefits for Australia's defence interests and the economy of South Australia.

1.3 Coalition Senators on the committee disagreed with the decision to cancel the hearing and to report without making findings in relation to the bill. Given the importance of a timely outcome to both national security and the South Australian economy, they wished to proceed with the inquiry and to report their findings.

Senator Alan Eggleston Senator David Fawcett

Deputy Chair

Senator the Hon David Johnston

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Appendix 1

Public submissions 1 Ilkurlka Aboriginal Corporation

2 Australian Rail Track Corporation Ltd

3 South Australian Chamber of Mines and Energy

4 Australian Radiation Protection and Nuclear Safety Agency

5 Kokatha Uwankara Native Title Claim Group

6 Arrium Mining

7 AustralAsia Railway Corporation

8 Maralinga Tjarutja and Anangu Pitjantjatjara Yankunytjatjara

9 Genesee and Wyoming Australia Pty Ltd

10 Department of Defence and the Department of Resources, Energy and Tourism

11 Conservation Council of South Australia

12 Mr David Noonan

13 Government of South Australia

14 Northern Territory Government

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PO Box 6100, Parliament House Canberra ACT 2600 Tel: (02) 6277 3560 Fax: (02) 6277 5794 Email: legcon.sen@aph.gov.au Internet: www.aph.gov.au/senate_legalcon

THE SENATE

LEGAL AND CONSTITUTIONAL AFFAIRS LEGISLATION COMMITTEE

20 August 2013

Senator the Hon John Hogg President of the Senate

INQUIRY INTO THE TELECOMMUNICATIONS AMENDMENT (GET A WARRANT) BILL 2013

Background

On 20 June 2013, the Senate referred the Telecommunications Amendment (Get a Warrant) Bill 2013 (Bill) to the Senate Legal and Constitutional Affairs Legislation Committee (committee) for inquiry and report by 31 October 2013.

The Bill sought to amend the Telecommunications (Interception and Access) Act 1979 to require standard warrant authorisation procedures for law enforcement and intelligence agencies that wish to access telecommunications.

Conduct of the inquiry

The committee invited submissions to the inquiry by 31 July 2013. Details of the inquiry, the Bill and associated documents were placed on the committee's website. The committee also wrote to 67 organisations and individuals.

The committee received 18 submissions for this inquiry.

On 5 August 2013, the Governor-General prorogued the 43rd Parliament and dissolved the House of Representatives. Accordingly, the committee has resolved not to continue its inquiry into the provisions of the Bill. This decision is consistent with the approach to inquiries during elections adopted by other Senate committees. If the Bill is reintroduced in the new parliament, the Senate can again refer it to the committee for inquiry.

Yours sincerely

Senator Trish Crossin Chair

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