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Future Drought Fund Bill 2018 [and] Future Drought Fund (Consequential Amendments) Bill 2018



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ISSN 1328-8091

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BILLS DIGEST NO. 58, 2018-19 11 FEBRUARY 2019

Future Drought Fund Bill 2018 [and] Future Drought Fund (Consequential Amendments) Bill 2018 Paula Pyburne Law and Bills Digest Section

Contents

The Bills Digest at a glance .............................................. 4

Purpose of the Bills ......................................................... 5

Structure of the Fund Bill ................................................. 5

Commencement .......................................................... 5

Structure of the Consequential Amendments Bill ............. 5

Commencement .......................................................... 6

Background ..................................................................... 6

Australia’s evolving drought policies .......................... 7

1980s ......................................................................... 7

1990s—National Drought Policy ............................... 7

Productivity Commission report ............................... 8

2016 election commitment ....................................... 8

Background to the Fund Bill ........................................ 9

Committee consideration ................................................ 9

Finance and Public Administration Committee .......... 9 Senate Standing Committee for the Scrutiny of Bills .............................................................................. 9

Policy position of non-government parties/independents.................................................... 10

Australian Greens ...................................................... 10

Position of major interest groups................................... 10

Farmers ..................................................................... 10

Date introduced: 28 November 2018

House: House of Representatives

Portfolio: Finance

Commencement: Future Drought Fund Act 2018 on proclamation or six months after Royal Assent, whichever occurs first; Future Drought Fund (Consequential Amendments) Act 2018 on various dates as set out in the body of this Bills Digest.

Links: The links to the Future Drought Fund Bill 2018, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page.

The links to the Future Drought Fund (Consequential Amendments) Bill 2018, its Explanatory Memorandum and second reading speech can be found on the Bill’s home page.

Both Bills can be accessed through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the Federal Register of Legislation website.

All hyperlinks in this Bills Digest are correct as at February 2019.

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Disability advocates ................................................... 10

Financial implications .................................................... 10

Fund Bill ..................................................................... 10

Consequential Amendments Bill ............................... 11

Special appropriations .............................................. 11

Key issue—effect on NDIS funding .......................... 11

Graphic 1: funding the NDIS .................................... 11

Statement of Compatibility with Human Rights.............. 12

Parliamentary Joint Committee on Human Rights ... 12 Future Drought Fund ..................................................... 12

Establishing the Fund ................................................ 12

Credits to the FDF Special Account ........................... 13

Delegation of power ................................................ 13

Investments of the Fund ........................................... 13

Future Drought Fund Investment Mandate .............. 13 Establishing the Investment Mandate .................... 13 Key issue—non-disallowable instrument ................ 14 Limitations on the Investment Mandate ................ 14 Obligation to comply with Investment Mandate .... 14 Formulating investment policies ............................. 15

About special accounts ............................................. 15

Establishing the special accounts ............................ 15

Requirements of a special account ......................... 16

Debiting the FDF Special Account ............................. 16

Main purpose—FDF Special Account ...................... 16 Other purposes—FDF Special Account ................... 16 AFDR Special Account.................................................... 17

Establishing the special account ............................... 17

Credits to the AFDR Special Account ........................ 17

Debiting the AFDR Special Account .......................... 17

Arrangements and grants ......................................... 17

Scrutiny of Bills Committee comments ................... 18 About making grants ............................................... 18

Delegation of power ................................................ 19

Key issue—right of review ....................................... 19

Limits on the exercise of power ................................ 20

Constitutional limits ................................................ 20

Compliance with the Drought Resilience Funding Plan ............................................................ 20

Requesting advice from the RIC Board ................... 21 Comment ................................................................. 21

Statutory review ........................................................ 22

Concluding comments ................................................... 22

Warning: All viewers of this digest are advised to visit the disclaimer appearing at the end of this document. The disclaimer sets out the status and purpose of the digest. Future Drought Fund Bill 2018 [and] Future Drought Fund (Consequential Amendments) Bill 2018 3

Warning: All viewers of this digest are advised to visit the disclaimer appearing at the end of this document. The disclaimer sets out the status and purpose of the digest. Future Drought Fund Bill 2018 [and] Future Drought Fund (Consequential Amendments) Bill 2018 4

The Bills Digest at a glance Purpose of the Future Drought Fund Bill

The Future Drought Fund Bill 2018 (the Fund Bill) establishes:

• the Future Drought Fund

• the Future Drought Fund Special Account and

• Agriculture Future Drought Resilience Special Account.

Investing the Future Drought Fund

The Future Fund Board, which is established under the Future Fund Act 2006 is responsible for deciding how to invest the Future Drought Fund. Investments of the Future Drought Fund will be held in the name of the Future Fund Board.

In making investment decisions, the Future Fund Board is bound by the Future Drought Fund Investment Mandate given to it by the Treasurer and the Minister for Finance.

Payments into and out of the Future Drought Fund Special Account

The Future Drought Fund Special Account (FDF Special Account) is a special account established in accordance with section 80 of the Public Governance, Performance and Accountability Act 2013 (PGPA Act). The statute that establishes a special account must specify both the purposes for which the special account may be debited and the types of receipts that may be credited to increase the balance of the special account.

The initial credit to the FDF Special Account will come from the transfer of the balance of the Building Australia Fund, which is estimated to be $3.9 billion. The Future Drought Fund is expected to grow to $5 billion over time.

There are only three purposes for which an amount may be debited from the FDF Special Account:

• transferring amounts to the Agriculture Future Drought Resilience Special Account (AFDR Special Account)

• paying amounts which are exclusively related to the investments of the Future Drought Fund— for example, paying the costs of, or incidental to the acquisition of financial assets by the Future Fund Board and

• paying amounts which are not exclusively related to the investments of the Future Drought Fund—for example paying part of the remuneration and allowances of the Future Fund Board members.

Payments into and out of the Agriculture Future Drought Resilience Special Account

The Agriculture Future Drought Resilience Special Account (AFDR Special Account) is also a special account established in accordance with the PGPA Act. From 1 July 2020, $100 million annually will be debited from the FDF Special Account and credited to the AFDR Special Account.

The Agriculture Minister, on behalf of the Commonwealth, may pay amounts from the AFDR Special Account under an arrangement with a person or body, or pay amounts by way of a grant to a person or body in relation to drought resilience. Neither the arrangements nor the grants may be loans. Arrangements or grants to a person or body must be consistent with the Drought Resilience Funding Plan.

Before making such an arrangement, or grant, the Agriculture Minister must request the advice of the Regional Investment Corporation Board, which is established by the Regional Investment Corporation Act 2018.

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Purpose of the Bills The purpose of the Future Drought Fund Bill 2018 (the Fund Bill) is to establish the Future Drought Fund which includes the Future Drought Fund Special Account, and the Agriculture Future Drought Resilience Special Account to fund initiatives that enhance future drought resilience, preparedness and response across Australia.

The purpose of the Future Drought Fund (Consequential Amendments) Bill 2018 (the Consequential Amendments Bill) is to make consequential amendments to a number of existing statutes to:

• extend the Future Fund Board’s duties to include managing the Future Drought Fund and

• allow for amounts to be transferred between the Future Drought Fund and the Future Fund.

Structure of the Fund Bill The Fund Bill comprises six Parts:

• Part 1 sets out preliminary matters including relevant definitions

• Part 2 establishes the Future Drought Fund. It also sets out matters relating to the credit of amounts to the Future Drought Fund Special Account and those relating to the debit of funds from the Future Drought Fund

• Part 3 concerns arrangements and grants relating to drought resilience

• Part 4 relates to the investment of the Future Drought Fund

• Part 5 contains relevant reporting obligations and

• Part 6 sets out miscellaneous matters including the delegation of powers of the Treasurer, the Minister for Finance and the Agriculture Minister.

Commencement The Fund Bill commences on the earlier of a single day to be fixed by Proclamation or six months after Royal Assent.

Structure of the Consequential Amendments Bill The Consequential Amendments Bill comprises three Schedules.

Schedule 1 contains general amendments to the following:

• the DisabilityCare Australia Fund Act 2013

• the Future Fund Act 2006

• the Medical Research Future Fund Act 2015

• the Nation-building Funds Act 2008 and

• the Regional Investment Corporation Act 2018.

Schedule 2 amends the following statutes to bring about the abolition of the Building Australia Fund

• the COAG Reform Fund Act 2008

• the DisabilityCare Australia Fund Act

• the Future Fund Act

• the Medical Research Future Fund Act and

• the Nation-building Funds Act.

Schedule 3 contains amendments to the Aboriginal and Torres Strait Islander Land and Sea Future Fund Act 2018 (ATSI Land and Sea Future Fund Act) and the Future Drought Fund Act (when

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enacted) which are contingent on the commencement of the ATSI Land and Sea Future Fund Act on 1 February 2019.1

Commencement Schedules 1 and 2 of the Consequential Amendments Bill commence at the same time as the Future Drought Fund Act commences.

Schedule 3 of the Consequential Amendments Bill commences on the later of:

• immediately after the commencement of the Future Drought Fund Act and

• immediately after the commencement of the ATSI Land and Sea Future Fund Act—that is, 1 February 2019.

However, the provisions do not commence at all unless both of those statutes commence.

Background The Bureau of Meteorology stated in December 2018:

The year to date has been exceptionally dry for New South Wales, Victoria, eastern South Australia, and the southern half of Queensland. Significant rainfall deficiencies continue to affect large areas of eastern Australia at timescales out to around two years' duration. This has been the seventh-lowest January to November rainfall since 1900 for the Murray-Darling Basin, eighth-lowest for New South Wales, and ninth-lowest for Victoria.

2

1. Aboriginal and Torres Strait Islander Land and Sea Future Fund Commencement Proclamation 2018. 2. Bureau of Meteorology (BOM), Drought, BOM website, 5 December 2018.

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The position in NSW in particular is particularly dire. In August 2018, the Berejiklian Government declared all of NSW to be in drought.3

Australia’s evolving drought policies

1980s Up until the late-1980s, drought was thought to be a climatic abnormality and, as such, was treated with disaster relief policies and Exceptional Circumstances (EC) payments in a similar way to floods, earthquakes and cyclones.4

However, during the late-1980s, the view of drought as a one-off, unpredictable and unmanageable natural disaster began to be questioned.5 Drought was subsequently removed from national disaster relief arrangements,6 and a task force was initiated to shape the most appropriate response to drought.7

1990s—National Drought Policy The National Drought Policy (NDP) was established in 1992 through collaboration between state and Commonwealth governments.8 The NDP was based on principles of self-reliance, risk management and an understanding that drought is an inherent feature of the Australian environment.9 The primary avenues for government assistance were:

• the Rural Adjustment Scheme (RAS) which adopted structural adjustment initiatives to improve farm productivity, profitability and sustainability10 and

• the Farm Household Support Scheme (FHSS) which provided finance with no repayments required until the family came off the scheme and with scope to repay over five or ten years.11

In 1997, following the change of Federal government in the previous year, the ‘RAS was scrapped but the exceptional circumstances concept was retained’.12 Unfortunately, the Government was faced with a number of challenges including:

• prolonged, expanding and worsening drought conditions across significant agricultural producing regions—which became known as the ‘Millennium Drought’13

• increasing focus on government intervention rather than self-management and sustainability and

3. P Hannam, ‘NSW declares entire state in drought’, The Sydney Morning Herald, 9 August 2018, p. 6. 4. P Walsh (Minister for Primary Industry), ‘Answer to Question on notice: Natural disasters: drought‘, [Questioner: D Brownhill], Question 180, Senate, Debates, 23 May 1985, p. 2472. 5. J Kerin (Minister for Primary Industries and Energy), Task force to review drought policies, media release, 12 April 1989. 6. Department of Agriculture and Water Resources (DAWR), History of drought policy and programs, DAWR website, last

reviewed 12 June 2018. 7. J Kerin (Minister for Primary Industries and Energy), Details of drought review task force, media release, 4 May 1989. 8. S Crean (Minister for Primary Industries and Energy), New national drought policy, media release, 20 August 1992. 9. Commonwealth Department of Primary Industries and Energy, New national drought policy, 20 August 1992. 10. S Crean (Minister for Primary Industries and Energy), Major reforms to rural adjustment scheme, media release, 24 July 1992. 11. S Crean (Minister for Primary Industries and Energy), Farm household support scheme launched, media release,

22 January 1993. 12. L Botterill, ‘Government responses to droughts in Australia’ in L Botterill and M Fisher (eds), Beyond drought; people, policy and perspectives, CSIRO publishing, Melbourne, 2003, p. 54. Between 1997 and 2012, Exceptional Circumstances

arrangements were the primary mechanism for supporting farmers under the National Drought Policy. For an event, such as drought, to be declared an exceptional circumstance, it had to: (i) be rare and severe, that is it must not have occurred more than once on average in every 20 to 25 years and must have been of a significant scale; (ii) have resulted in a rare and severe downturn in farm income over a prolonged period of time (that is, greater than 12 months) and (iii) not be predictable or part of a process of structural adjustment. Source: DAWR, History of drought policy and programs, op. cit. 13. BOM, ‘Recent rainfall, drought and southern Australia’s long-term rainfall decline’, BOM website, April 2015. See information

under the heading ‘Millennium Drought’.

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• the situation where EC payments artificially kept unviable and/or poorly managed farm businesses afloat.14

Productivity Commission report The 2008 review of government assistance for drought events by the Productivity Commission opined:

There is a mismatch between the NDP’s policy objectives and its programs. From its inception, policy has ostensibly centred on helping farmers build their self-reliance to manage climate variability and preparedness for droughts. Program expenditures, however, have not been directed to this end but have mainly flowed as emergency payments to a minority of farmers in hardship and to stressed farm businesses.

15 [emphasis added]

The Productivity Commission argued for the termination of the EC declaration process and the various programs that it triggered and recommended a policy which would:

• assist primary producers to adapt and adjust to the impacts of climate variability and climate change

• encourage primary producers to adopt self-reliant approaches to managing risks

• assist primary producers to manage greenhouse gas emissions and other adverse impacts on the environment and

• ensure that farming families in hardship have temporary access to an income support scheme that recognises the special circumstances of farmers.16

2016 election commitment Since that time, Australia’s drought policy has continued to evolve. Governments have sought to:

… provide the tools to facilitate more effective risk management by farmers and a long-term approach to drought that incorporates provision of enhanced social and community support for farming families and rural communities, and business initiatives for preparedness and in-drought support. 17

In accordance with its 2016 Election commitment, the Government enacted the Regional Investment Corporation Act 2018.18 Then Minister for Agriculture and Water Resources, Barnaby Joyce stated:

A re-elected Coalition Government will establish a Regional Investment Corporation to fast-track the delivery of $4.5 billion in Commonwealth drought and water infrastructure loans…

The Coalition is committed to streamlining Commonwealth financing and concessional loan processing to enable new dams to be financed quickly and ensure drought loans are speedily approved to help farmers in need.

The Regional Investment Corporation will be established as the single administrator for the $4.5 billion in Agriculture and Water Resources portfolio financing and concessional loans initiatives.

14. Ibid. 15. Ibid., p. xxiv. 16. Ibid., p. xl. 17. Australian Government, Agricultural competitiveness: stronger farmers, stronger economy, White paper, 2015, p. 1. 18. P Pyburne, Regional Investment Corporation Bill 2017, Bills digest, 13, 2017-18, Parliamentary Library, Canberra, 2017; see

also Regional Investment Corporation (RIC), Corporate Plan 2018-19, RIC website.

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No longer will the Commonwealth have to barter with state governments to process drought and dairy concessional loans to help farmers. Under a re-elected Coalition Government we will be able to deliver this support direct to farmers in need. 19

[emphasis added]

Background to the Fund Bill When Scott Morrison became Prime Minister on 24 August 2018, he made it clear that one of his first priorities was to deal with the ongoing drought.20 At the Drought Summit held in Canberra on 26 October 2018, the Prime Minister announced a package of new initiatives for drought relief, recovery and resilience, including the Future Drought Fund.

A comprehensive drought response needs to meet not only the immediate needs of those affected but to look to the future to ensure our agriculture sector is prepared and resilient. So we can do this, our Government is establishing a Future Drought Fund with an initial allocation of $3.9 billion in 2019. In time, this fund will grow to $5 billion. The Future Drought Fund will provide a sustainable source of funding for drought resilience works, preparedness and recovery. It's about helping farmers and their communities to prepare and adapt to the impact of drought. Through the fund, the Government will drawdown $100 million a year for projects, research and infrastructure to support long-term sustainability.

21

In a radio interview conducted on the same day Mr Morrison confirmed that the initial allocation of $3.9 million into the Future Drought Fund would arise from the transfer of that amount from the Building Australia Fund, which had previously been nominated as a source of funding for the National Disability Insurance Scheme (NDIS).22

The Fund Bill establishes the Future Drought Fund. It represents the latest in a long line of efforts by governments of all political persuasions to address the complex problems of ongoing drought and its social and economic effects.

Committee consideration

Finance and Public Administration Committee The Bills have been referred to the Finance and Public Administration Committee (FPA Committee) for inquiry and report by 8 February 2019.23 The FPA Committee received six submissions from stakeholders.

Senate Standing Committee for the Scrutiny of Bills The Senate Standing Committee for the Scrutiny of Bills has commented on a number of aspects of the Fund Bill.24 These comments are canvassed under the discussion of the provisions of the Fund Bill below.

19. B Joyce (Deputy Prime Minister and Minister for Agriculture and Water Resources), Coalition to establish $4.5 billion Regional Investment Corporation, media release, 22 June 2016. 20. S Morrison (Prime Minister), Drought, transcript of joint doorstop interview, Canberra, 25 August 2018. 21. S Morrison (Prime Minister), Transcript of address to Drought Summit, Canberra, 26 October 2018. 22. S Morrison (Prime Minister), Transcript of interview with Sabra Lane, ABC AM, Canberra 26 October 2018. 23. The terms of reference, submissions to the Finance and Public Administration Committee and the Committee’s final report

are available at the inquiry homepage. 24. Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, 15, 2018, pp. 12-19.

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Policy position of non-government parties/independents

Australian Greens Australian Greens (the Greens) Senator Steele-John has expressed concern that the Prime Minister ‘is considering taking funds from the NDIS to provide relief to drought-stricken farmers’.25

And further:

This government needs to prove that the NDIS will be fully funded before it considers repurposing any funds that might be made available to disabled Australians. Taking money from one disadvantaged community to give to another is just bad policy, and in a wealthy country like Australia shouldn’t even be on the table …

26

Position of major interest groups

Farmers Speaking on the day after the drought summit, the National Farmers Federation President Fiona Simson stated:

The Future Drought Fund and further new initiatives focus on building the resilience of not only our farmers but also our regional communities, which we know bear much of the social and economic hardship during drought.

… the Government should be commended for the highly significant and holistic measures extended to drought support today and in the months previous. 27

Disability advocates On the other hand, disability advocates are reported to have ‘slammed’ the plan on the grounds that ‘the first $3.9 billion of the scheme … is to be paid for out of a pool of money originally intended for the National Disability Insurance Scheme’.28

Physical Disability Council of NSW chief executive Serena Ovens is reported as stating:

… the funds should instead be used to ensure the NDIS would be sustainable in the long term and that Australians with disability were given “what is required to have a normal, reasonable life” … while helping farmers was a worthy aim, it should not be done “at the cost of an equally important scheme for some very vulnerable people”.

29

Financial implications

Fund Bill According to the Explanatory Memorandum for the Fund Bill:

The initial credit of the balance of the funds from the Building Australia Fund to the Future Drought Fund will not have a direct impact on underlying cash and fiscal balances, as these represent the transfer of financial assets between funds.

25. Senator J Steele-John, Scott Morrison plans to take money from NDIS to provide drought relief to farmers; robbing Peter to pay Paul, media release, 25 October 2018. 26. Senator J Steele-John, No money earmarked for NDIS can be re-purposed until this government proves how they will ensure the scheme is full funded, media release, 29 October 2018. 27. F Simson (President, National Farmers Federation), ‘Drought support “most comprehensive yet”’, media release,

27 October 2018. 28. D McCauley, ‘NDIS funds to now go on drought aid’, The Canberra Times, 27 October 2018, p. 12. 29. Ibid. See also C Wahlquist, ‘Move to reassign NDIS funds for drought relief upsets disability groups’, Guardian Australia,

27 October 2018.

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Positive interest earnings of the Future Drought Fund will have a positive impact on the underlying cash and fiscal balances. Costs incurred by the Future Fund Board have a negative impact on the underlying cash and fiscal balances. Payments for initiatives to enhance future drought resilience will have a negative impact on the underlying cash and fiscal balance.

30

Consequential Amendments Bill The Explanatory Memorandum for the Consequential Amendments Bill states that the Bill ‘has no financial impact’.31

Special appropriations Speaking about the Fund Bill, Minister for Finance and Public Service Mathias Cormann, said:

… the [Future Drought] Fund would start with $3.9 billion, growing to $5 billion over the next decade. From 1 July 2020, $100 million will be directed annually to fund a wide range of drought resilience projects, while the balance is reinvested the Fund. 32

Key issue—effect on NDIS funding The 2017-18 Budget indicated the Government’s commitment to Australians with permanent and significant disability having access to vital care and support, with the Government fully funding the National Disability Insurance Scheme. The graphic below demonstrates the proposed sources of that funding at that time.33

Graphic 1: funding the NDIS

Note: The NDIS Savings Fund includes one-fifth of the Medicare levy from 1 July 2019, underspends and realised saves redirected to the

NDIS Savings Fund, and uncommitted funds from the Building Australia Fund and Education Investment Fund.

30. Explanatory Memorandum, Future Drought Fund Bill 2018, p. 5. 31. Explanatory Memorandum, Future Drought Fund (Consequential Amendments) Bill 2018, p. 5. 32. M Cormann (Minister for Finance and the Public Service) and D Littleproud (Minister for Agriculture and Water Resources), $5 billion Future Drought Fund, joint media release, 3 December 2018.

33. Budget 2017-18, Budget overview, 9 May 2017, p. 16. See also Australian Government, Budget strategy and outlook: budget paper no. 1: 2017-18, pp. 3-8 to 3-10.

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However, Finance Minister Mathias Cormann has since stated that the NDIS ‘is now fully funded from consolidated revenue on the back of a stronger economy and, because of our successful budget repair efforts, a stronger and improving budget position’.34

He argues that ‘our sound economic and fiscal management has enabled us to fully fund the NDIS from consolidated revenue without increasing the Medicare Levy as originally proposed and without transferring the Building Australia Funds into the NDIS Savings Special Account’.35

Statement of Compatibility with Human Rights As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.36

Parliamentary Joint Committee on Human Rights The Parliamentary Joint Committee on Human Rights considered that the Bills did not raise human rights concerns—either because they do not engage or promote human rights, and/or permissibly limit human rights.37

Future Drought Fund

Establishing the Fund Clause 10 of the Fund Bill establishes the Future Drought Fund. It consists of:

• the Future Drought Fund Special Account and

• the investments of the Future Drought Fund.

At the time of its establishment the balance of the Building Australia Fund Special Account will be credited to the Future Drought Fund Special Account.38

Operation of the Consequential Amendments Bill Item 33 in Part 1 of Schedule 2 to the Consequential Amendments Bill repeals Chapter 2 of the Nation-building Funds Act which sets up the Building Australia Fund. That Fund was established:  to make payments in relation to the creation or development of transport infrastructure  to make payments in relation to the creation or development of communications

infrastructure  to make payments in relation to eligible national broadband network matters  to make payments in relation to the creation or development of energy infrastructure and  to make payments in relation to the creation or development of water infrastructure.39 The repeal of Chapter 2 of the Nation-building Funds Act will enable the Government to redirect the balance of the Fund into the FDF Special Account.

34. A Colangelo, ‘NDIS money for drought “frightening”’, The Sunday Canberra Times, 28 October 2018, p. 10. 35. Ibid. 36. The Statement of Compatibility with Human Rights can be found at pages 5-6 of the Explanatory Memorandum to the Future Drought Fund Bill 2018 and at page 5 of the Explanatory Memorandum to the Future Drought Fund (Consequential

Amendments) Bill 2018. 37. Parliamentary Joint Committee on Human Rights, Report, 13, 2018, p. 10. 38. Clause 11 of the Fund Bill. 39. Section 9 of the Nation-building Funds Act.

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The financial assets of the Building Australia Fund will become an investment of the Future Drought Fund.40 The Fund Bill incorporates the definition of the term financial asset from the Future Fund Act.41

Credits to the FDF Special Account In addition to those amounts which will be credited to the FDF Special Account on its establishment, clause 14 of the Fund Bill provides that the responsible Ministers—being the Treasurer and the Minister for Finance42—may determine in writing that an amount is to be credited to the FDF Special Account on a specified day or in specified instalments on specified days.43

Delegation of power However, under clause 61 of the Fund Bill, the Finance Minister may delegate any or all of his, or her, powers under clause 14 to the Secretary of the Department of Finance or a Senior Executive Service (SES) employee (or acting SES employee) of that Department. Similarly, under clause 62 of the Fund Bill, the Treasurer may delegate any or all of his, or her, powers under clause 14 to the Secretary of the Treasury Department or an SES employee (or acting SES employee) of that Department.

Investments of the Fund The Future Fund Board44 is responsible for deciding how to invest the Future Drought Fund.45 The Fund Bill empowers the Future Fund Board to invest amounts standing to the credit of the FDF Special Account in any financial assets.46 Any income derived from an investment of the Future Drought Fund is to be credited to the FDF Special Account.47

Future Drought Fund Investment Mandate

Establishing the Investment Mandate Clause 41 of the Fund Bill empowers the responsible Ministers to give the Future Fund Board written directions about the performance of its Future Drought Fund investment functions, and provides that they must give at least one such direction. These directions are known as the Future Drought Fund Investment Mandate.48

In giving such a direction the responsible Ministers must have regard to:

• the need to maximise the return earned on the Future Drought Fund over the long term

• the need to enhance the Commonwealth’s ability to make payments under arrangements and grants for drought resilience (see the discussion below under the heading ‘Debiting the FDF Special Account’) and

40. Clause 12 of the Fund Bill. 41. Clause 5 of the Fund Bill. Future Fund Act, section 6; and Future Fund Act, section 5 for the definition of GFS Australia. 42. Clause 5 of the Fund Bill. 43. Although the determination is a legislative instrument under the Legislation Act 2003, it is not subject to disallowance by the

Parliament. 44. The Future Fund Board of Guardians is established by Part 4 of the Future Fund Act 2006. 45. Clause 39 of the Fund Bill. 46. Subclause 39(1) of the Fund Bill. Note that clause 39 does not authorise the acquisition of a derivative. 47. Clause 40 of the Fund Bill. 48. Subclause 41(3) of the Fund Bill.

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• such other matters as the responsible Ministers consider relevant.49

Key issue—non-disallowable instrument Although the Future Drought Fund Investment Mandate is a legislative instrument, the notes to clause 41 specify that it is neither disallowable nor subject to sunsetting in accordance with the Legislation Act 2003. This is because the directions will be covered by an exemption under the Legislation (Exemptions and Other Matters) Regulation 2015.

According to the Explanatory Memorandum to the Fund Bill:

The Government considers it is appropriate that a direction under subclause 41(1) of the Bill is not subject to disallowance. The Bill would provide adequate scrutiny of directions comprising the Future Drought Fund Investment Mandate through mandated consultation with the Future Fund Board (clause 44). Exemption from disallowance together with consultation would give the Future Fund Board necessary certainty when investing through the Future Drought Fund. While it would be possible to provide that a direction under subclause 41(1) does not come into effect until disallowance periods have expired, this approach would significantly impede the ability of Government to make urgent changes to the Future Drought Fund Investment Mandate in the national interest.

50

The Scrutiny of Bills Committee acknowledged the explanation but did not consider that it provided sufficient justification ‘for leaving significant elements of the drought resilience funding scheme in the Bill to non-disallowable instruments’.51 The Committee has asked the Minister for advice:

… as to the appropriateness of amending the Bill to provide that the directions are subject to disallowance but only come into force once the disallowance period has expired, unless the minister certifies that there is an urgent need to make changes and it is in the national interest that a specified direction not be subject to disallowance.

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Limitations on the Investment Mandate As noted by the Scrutiny of Bills Committee, the Bill inserts a limitation on the powers of the responsible Ministers in making the Future Drought Fund Investment Mandate (Investment Mandate). The responsible Ministers must not give a direction under subclause 41(1) that has the purpose, or has or is likely to have the effect, of directly or indirectly requiring the Future Fund Board to:

• invest an amount standing to the credit of the FDF Special Account in a particular financial asset

• acquire a particular derivative53 or

• allocate financial assets to a particular business entity, a particular activity or a particular business.54

Obligation to comply with Investment Mandate Clause 45 of the Fund Bill requires the Future Fund Board to take all reasonable steps to comply with the Investment Mandate. If the Future Fund Board becomes aware that it has not done so it

49. Subclause 41(2) of the Fund Bill. 50. Explanatory Memorandum, Future Drought Fund Bill 2018, p. 23. 51. Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, op. cit., p. 16. 52. Ibid. 53. See also, clause 49 of the Fund Bill which does not allow the acquisition of a derivative for the purpose of speculation or

leverage.

54. Clause 43 of the Fund Bill.

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must, as soon as practicable after becoming so aware, give the responsible Ministers a written statement:

• advising of the failure to comply with the Investment Mandate and

• setting out the action that it proposes to take in order to comply with the Investment Mandate.55

Alternatively, if the responsible Ministers are satisfied that the Future Fund Board has failed to comply with the Investment Mandate, they may direct the Board, in writing:

• to give the responsible Ministers, within a specified period, a written explanation for the failure to comply with the Investment Mandate and

• to take action in the time specified in the notice, in order to comply with the Investment Mandate.56

Formulating investment policies Consistent with the requirement to comply with the Investment Mandate, clause 48 of the Fund Bill requires the Future Fund Board to formulate and periodically review written policies in relation to the Future Drought Fund including the relevant investment strategy, benchmarks and standards for assessing the performance and risk management for the Fund.

The Future Fund Board must publish those polices on the internet.57

About special accounts A special account is a limited special appropriation that notionally sets aside an amount that can only be expended for listed purposes. The amount of appropriation that may be drawn from the Consolidated Revenue Fund (CRF) by means of a special account is limited to the balance of each special account at any given time. Special accounts are not bank accounts. Amounts forming part of the balance of a special account may be held in various ways, such as in the Official Public Account, an entity's official bank account, or partly in both.58

Establishing the special accounts A special account can be established either by the Finance Minister making a determination under section 78 of the Public Governance, Performance and Accountability Act 2013 (PGPA Act), or by legislation as recognised under section 80 of the PGPA Act. The appropriation authority to draw money from the CRF is section 78 or 80 of the PGPA Act, as relevant—rather than the determination or the legislation.59

The Fund Bill establishes two special accounts in accordance with section 80 of the PGPA Act:

• clause 13 of the Fund Bill establishes the Future Drought Fund Special Account (FDF Special Account) and

• clause 33 of the Fund Bill establishes the Agriculture Future Drought Resilience Special Account (AFDR Special Account).

55. Subclause 45(2) of the Fund Bill. 56. Subclause 45(3) of the Fund Bill. 57. Subclause 48(3) of the Fund Bill. 58. Department of Finance (DoF), ‘Special appropriations: special accounts’, DoF website. 59. Ibid.

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Requirements of a special account Special accounts may be established when it is clear that other types of appropriations are not suitable. For example, there may be a need for specific transparency. The Act that establishes a special account specifies both the purposes for which the special account may be debited and the types of receipts that may be credited to increase the balance of the special account.60

Accordingly, the Fund Bill specifies the main purposes of each of the special accounts. Amounts credited to a special account can only be spent for the specified purposes.

Debiting the FDF Special Account

Main purpose—FDF Special Account The main purpose of the FDF Special Account is to transfer amounts to the AFDR Special Account so that the Agriculture Minister, on behalf of the Commonwealth, may pay amounts under an arrangement with a person or body, or pay amounts by way of a grant to a person or body in relation to drought resilience.61

For the purposes of the Fund Bill an arrangement includes a contract, agreement or deed—but does not include a ‘securities lending arrangement’.62

The term drought resilience63 is defined as:

• resilience to drought64

• preparedness for drought

• responsiveness to drought

• management of exposure to drought

• adaptation to the impact of drought

• recovery from drought or

• long-term drought-related sustainability of farms and communities that:

- have been affected by drought - are being affected by drought or - are at significant risk of being affected by drought. According to the Explanatory Memorandum to the Fund Bill:

The words ‘at significant risk’ in the definition of drought resilience would require a higher threshold test than a farm or community that merely might be or could be affected by drought at some point in the future. The risk of being affected by drought would need to be ‘significant’ to attract this element of the definition of drought resilience.

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Other purposes—FDF Special Account Clause 16 sets out additional approved purposes of the FDF Special Account, being:

• paying the costs of, or incidental to, the acquisition of financial assets

60. Ibid. 61. Clause 15 of the Fund Bill. 62. Clause 5 of the Fund Bill. 63. Clause 5 of the Fund Bill. 64. Clause 5 of the Fund Bill defines drought as drought in Australia. 65. Explanatory Memorandum, Future Drought Fund Bill 2018, p. 12.

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• paying expenses of an investment of the Future Drought Fund

• paying the costs of, or incidental to, the acquisition of derivatives

• paying or discharging the costs, expenses and other obligations incurred by the Future Fund Board under a contract between the Board and an investment manager

• paying or discharging the costs, expenses and other obligations incurred in connection with the establishment, maintenance or operation of a bank account of the Future Fund Board, if the bank account relates exclusively to the Future Drought Fund

• paying a premium in respect of a contract of insurance entered into by the Future Fund Board exclusively in connection with the Future Drought Fund

• paying or discharging any other costs, expenses, obligations or liabilities incurred by the Future Fund Board exclusively in connection with the Future Drought Fund.

Clause 17 of the Bill lists other purposes for which the funds in the FDF Special Account may be expended. These relate to expenses incurred by the Future Fund Board in its management of the Future Drought Fund.

The amounts specified under clauses 16 and 17 may be transferred to the Future Fund Special Account in accordance with clause 19 of the Fund Bill. Importantly, subclause 61(2) of the Fund Bill allows the Finance Minister to delegate any or all of his, or her, powers under clause 19 to the Secretary or an SES employee of the Department of Finance, to the Chair of the Future Fund Board or to an SES employee of the Future Fund Management Agency.66

AFDR Special Account

Establishing the special account As stated above, clause 33 of the Fund Bill establishes the AFDR Special Account under section 80 of the PGPA Act.

Credits to the AFDR Special Account Each financial year, commencing with the financial year beginning on 1 July 2020, the Finance Minister must direct, in writing, that $100 million is to be debited from the FDF Special Account and credited to the AFDR Special Account. This may be by way of a lump sum on a specified day or by instalments on specified days.67

In addition, certain amounts paid to the Commonwealth in accordance with clause 21 (see discussion below) may be credited to the AFDR Special Account.

Debiting the AFDR Special Account Amounts may only be debited from a special account to meet the purposes of the account as stipulated in the establishing legislation. In this case, the relevant purposes of the AFDR Special Account are set out in clause 36 of the Fund Bill—that is, to pay amounts under an arrangement or to make grants. Both of these matters are explained in clause 21 of the Fund Bill.

Arrangements and grants Under clause 21, the Agriculture Minister may, on behalf of the Commonwealth make an arrangement with, or make a grant of financial assistance to, a person or body for the following:

66. The Future Fund Management Agency is established by Part 5 of the Future Fund Act. 67. Subclause 34(2) of the Fund Bill. The direction of the Finance Minister is not a legislative instrument. Note also that under clause 61 of the Fund Bill, the Finance Minister may delegate any or all of his, or her, powers under clause 34 to the Secretary of the Department of Finance or an SES employee (or acting SES employee) of that Department.

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• the carrying out of a project that is directed towards achieving drought resilience

• the carrying out of research that is directed towards achieving drought resilience

• the provision of advice that is directed towards achieving drought resilience

• the provision of a service that is directed towards achieving drought resilience

• the adoption of technology that is directed towards achieving drought resilience or

• a matter that is incidental or ancillary to those matters.68

For the purposes of the Fund Bill, an arrangement or a grant may be made by way of the reimbursement, or partial reimbursement, of costs or expenses.69 Importantly, however, clause 21 does not does not authorise the acquisition of shares in a company or the making of a loan.70

The Explanatory Memorandum to the Fund Bill provides examples of activities that could be funded under this provision including:

• the creation or development of water infrastructure

• financial and business planning for primary producers to improve ability to manage through lower income periods caused by drought

• restoring native vegetation for soil or water regeneration

• pest control

• fire mitigation

• training and information for primary producers on sustainable stock management during drought

• training and information on local climate variability and advice on climate risk applied to specific locations

• blue-sky research in drought resilience or

• improving data on fodder and impacts from drought, including market trends. 71

Scrutiny of Bills Committee comments The Scrutiny of Bills Committee drew attention to the absence of guidance in the Bill as to the terms and conditions that would attach to the financial assistance granted in accordance with clause 21—beyond requiring that any such terms and conditions are to be set out in a written agreement between the Commonwealth and the relevant grant recipient.72 Of particular concern to the Committee was that the Explanatory Memorandum to the Fund Bill:

… provides no explanation as to why it is considered necessary and appropriate to confer on the Minister a broad power to provide financial assistance with regard to drought resilience, without specifying any terms and conditions to which the provision of assistance would be subject. 73

About making grants Clause 22 of the Fund Bill is ancillary to clause 21. Where financial assistance has been provided by way of grant (rather than under an arrangement), the terms and conditions of the grant must be contained in a written agreement between the Commonwealth and the grant recipient. Section

68. Subclause 21(1) of the Fund Bill. 69. Subclauses 21(2) and (3) of the Fund Bill. 70. Subclause 21(5) of the Fund Bill. 71. Explanatory Memorandum, Future Drought Fund Bill 2018, pp. 12-13. 72. Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, op. cit., p. 12. 73. Ibid.

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105C of the PGPA Act empowers the Finance Minister, by written instrument, to make provision about grants by the Commonwealth.

Accordingly, the Commonwealth Grants Rules and Guidelines 2017 (CGRGs) establish the Commonwealth grants policy framework. The CGRGs contain the key legislative and policy requirements—including how they apply to Ministers.74 According to the CGRGs:

Achieving value with relevant money should be a prime consideration in all phases of grants administration. Grants administration should provide value, as should the grantees in delivering grant activities. This requires the careful comparison of the costs and benefits of feasible options in all phases of grants administration, particularly when planning and designing grant opportunities and when selecting grantees. It is also a means by which officials can assure the entity’s accountable authority, Ministers and the Parliament that resources are deployed in an efficient, effective, economical and ethical manner, while not imposing overly burdensome requirements on grantees.

75

However, the Explanatory Memorandum does not make a connection between the Fund Bill and the CGRGs. That being the case, it is unclear whether there is an intention that the relevant grants will be administered in accordance with CGRGs.

The Scrutiny of Bills Committee has requested advice from the Minister about ‘the appropriateness of amending the bill to include (at least high-level) guidance as to the terms and conditions on which financial assistance may be granted’.76

Delegation of power Importantly, under clause 63 of the Fund Bill, the Agriculture Minister may delegate any or all of his, or her, powers under clauses 21 and 22 to the Secretary of the Agriculture Department, an SES employee (or acting SES employee) of that Department or to a person who is an official of a Commonwealth entity who is not employed by the Agriculture Department.

According to the Explanatory Memorandum to the Fund Bill:

This broad delegation power is required to enable grants made under clause 21 to be administered by Commonwealth officials employed in the Australian Government Community Grants Hub, managed by the Commonwealth Department of Social Services. 77

Key issue—right of review Given the apparent opacity of the process for which the Fund Bill provides only a skeletal outline, the question arises as to whether a review process will be available to unsuccessful applicants.78 Currently the Fund Bill is silent on the access to such a process.

Noting the absence of relevant information, the Scrutiny of Bills Committee has requested the Minister’s advice about:

• the processes by which grants would be provided, and arrangements would be entered into, in accordance with clause 21 of the Bill

• whether decisions in relation to the provision of grants and entering into arrangements would be subject to independent merits review and

74. Department of Finance (DoF), Commonwealth Grants Rules and Guidelines 2017, p. 29. 75. Ibid.

76. Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, op. cit., p. 13. 77. Explanatory Memorandum, Future Drought Fund Bill 2018, p. 30. 78. It should be noted that the Bill does not set out any application process.

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• if not, the characteristics of those decisions that would justify excluding merits review.79

Limits on the exercise of power

Constitutional limits The Fund Bill empowers the Agriculture Minister, on behalf of the Commonwealth, to make an arrangement with, or make a grant of financial assistance to, a person or body in relation to drought resilience. In order to be constitutionally valid, such an arrangement or grant must be consistent with one or more of the powers which are set out in the Australian Constitution. For that reason the Fund Bill lists each and every power on which the Minister may rely when making an arrangement or grant.80

Essentially the powers that are relied on either individually, or in combination, are:

• the external affairs power under section 51(xxix) of the Constitution81

• the grants power under section 9682

• the corporations power which relates to foreign corporations, and trading and financial corporations formed within the limits of the Commonwealth under section 51(xx)83

• the Territories power under section 12284

• the power to make laws in respect of a Commonwealth Place in accordance with the Commonwealth Places (Application of Laws) Act 197085

• the power to make laws with respect to trade and commerce with other countries, and among the states under section 51(i) of the Constitution86

• the postal, telegraphic, telephonic powers under section 51(v)87

• the power relating to the development of patents of inventions under section 51(xviii)88

• the statistics power under section 51(xi)89

• powers with respect to meteorological observations under section 51(viii)90

• the insurance power under section 51(xiv)91

• the implied power of the Parliament to make laws with respect to nationhood92 and

• powers in relation to incidental matters under section 51(xxxix).93

Compliance with the Drought Resilience Funding Plan The Fund Bill requires the Agriculture Minister to make a Drought Resilience Funding Plan (the Funding Plan) and publish it on the Department’s website.94 The purpose of the Funding Plan is to

79. Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, op. cit., p. 14. 80. Clause 26 of the Fund Bill. 81. Paragraphs 26(a)-(g) of the Fund Bill. 82. Paragraph 26(h) of the Fund Bill. 83. Paragraph 26(i) of the Fund Bill. 84. Paragraph 26(j) of the Fund Bill. 85. Paragraph 26(k) of the Fund Bill. 86. Paragraph 26(l) of the Fund Bill. 87. Paragraph 26(m) of the Fund Bill. 88. Paragraph 26(n) of the Fund Bill. 89. Paragraph 26(o) of the Fund Bill. 90. Paragraph 26(p) of the Fund Bill. 91. Paragraph 26(q) of the Fund Bill. 92. Paragraph 26(r) of the Fund Bill. 93. Paragraph 26(s) of the Fund Bill.

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ensure that the Agriculture Minister has a consistent and coherent approach to the making of arrangements and grants; and to the setting of the terms and conditions of a grant which are detailed in a formal agreement.

Clause 32 of the Fund Bill requires the Agriculture Minister to publicly consult about the Funding Plan before it is finalised.

The Agriculture Minister must take all reasonable steps to ensure that the first Funding Plan comes into force before 1 July 2020. It will remain in force for four years from the date on which it is registered under the Legislation Act95—unless it is repealed and replaced on an earlier date.96 Although the Funding Plan is a legislative instrument, it is not subject to disallowance by the Parliament.97

The Agriculture Minister must comply with a Funding Plan that is in force when exercising a power under clauses 21 and 22.98

Requesting advice from the RIC Board In addition, the Agriculture Minister must request advice from the Regional Investment Corporation Board (RIC Board) about whether he, or she, should make an arrangement or grant, or enter an agreement, prior to exercising the relevant power under clauses 21 and 22.99 In that case, the RIC Board must comply with the Minister’s request and, in providing such advice,100 must comply with the Drought Resilience Funding Plan that is in force at that time.101

Operation of the Consequential Amendments Bill Items 34-39 in Schedule 1 to the Consequential Amendments Bill amend the Regional Investment Corporations Act to give effect to these provisions as follows:  item 35 amends paragraph 15(1)(e) to confer the advice function on the RIC Board and  items 36 and 37 amend subsection 17(2) so that a person may be appointed as an RIC Board

Member if he, or she, has qualifications, skills or experience in drought resilience. The Agriculture Minister must, in exercising a power under clauses 21 and 22, have regard to any advice that the RIC Board has provided.102

Comment On its face, requiring the Minister to obtain the advice of the RIC Board before exercising a power under clauses 21 and 22 will operate to moderate the power of the Minister. However, it must be noted that the RIC Board consists of the Chair; and at least two, and no more than four persons.103

94. Subclauses 31(1), (2) and (8) of the Fund Bill. 95. Section 15H of the Legislation Act deals with the registration of legislative instruments, notifiable instruments and other documents. 96. Subclauses 31(4) and (5) of the Fund Bill. 97. Subclauses 31(7) of the Fund Bill. 98. Clause 25 of the Fund Bill. Importantly, section 71 of the PGPA Act requires that a Minister must not approve proposed

expenditure of relevant money unless satisfied, after reasonable inquiries, that the expenditure would be a ‘proper’ use of relevant money. The terms of the approval must be recorded in writing as soon as practicable after the approval is given. Section 8 of the PGPA Act defines the term proper when used in relation to the use or management of public resources as efficient, effective, economical and ethical. 99. Subclause 28(1) of the Fund Bill. 100. Subclause 28(2) of the Fund Bill. 101. Clause 29 of the Fund Bill. 102. Subclause 28(3) of the Fund Bill. 103. Regional Investment Corporation Act, section 16.

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Each of those persons is appointed by the responsible Ministers.104 For the purposes of the Regional Investment Corporation Act, the responsible Ministers are the Agriculture Minister and the Finance Minister.105

Essentially then, the power to determine who is to receive farm business loans from the Regional Investment Corporation and who is to receive monies under an arrangement or grant under the Fund Bill lies in the hands of the Agriculture Minister and no more than five other persons who have been appointed by the Agriculture Minister. Although the arrangements and grants under the Fund Bill are to be made in accordance with the Drought Resilience Funding Plan it is for the Agriculture Minister to make that Plan.

It may, therefore, be prudent to consider further specific checks and balances on the payments of arrangements and grants.

Statutory review Clause 65 of the Fund Bill requires the responsible Ministers to conduct a review of the operation of the Act after ten years. However, there is no requirement to table the outcome of the review in the Parliament.

Concluding comments The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) published an analysis of the 2018 drought in which it opined:

While attention is focused on responding to the current situation, it is important to understand the wider context—and tensions—around drought policy and climate change. Most importantly, while supporting those in need is appropriate, there is a risk that some interventions intended to assist farmers during droughts can have negative consequences in the longer term … Policies that impede structural adjustment have the potential to weaken overall productivity growth and hence competitiveness in international markets.

106 [emphasis added]

The Prime Minister has stated that the Future Drought Fund will provide a sustainable source of funding for drought resilience works, preparedness and recovery. However, the breadth of the activities that could be funded is such that care will need to be taken to ensure that structural adjustment is not impeded.

104. Regional Investment Corporation Act, subsection 17(1). 105. Regional Investment Corporation Act, section 4. 106. Bureau of Agricultural and Resource Economics and Sciences, Analysis of the 2018 drought, 26 October 2018, p. 6.

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